Avoid costly mistakes and optimize your product launch by strategically managing your packaging inventory.
One of the growth strategies we consult on is Product Development (PD) and Product Lifecycle Management (PLM), including new product development efforts and market expansions. And while tomes have been written about how to develop new products, there are many tactical aspects to this work that are less sexy than coming up with a new product, and as a result they get lost in the shuffle or delegated to a buyer. However, if you release a successful new product, but biff it on the packaging (either ordering too little or too much), that can negatively impact your sales and/or margins.
Next time you're launching a new product, use this checklist to help you determine how many display/merchandising boxes to order, and whether to buy in bulk or order more frequently:
1. Demand Forecasting:
- How predictable is demand for your product? Stable demand favors bulk orders, while unpredictable demand makes smaller, more frequent orders safer.
- What's your sales growth like? Rapid growth might mean needing to increase order sizes quickly, while slow growth favors a cautious approach.
- Are there seasonal peaks? If so, you'll need to plan for larger orders leading up to those periods.
2. Cost Analysis:
- Price Breaks: What are the price tiers for different order quantities? Calculate the cost per unit at each tier to see the actual savings.
- Carrying Costs: What does it cost to store inventory? Consider warehouse space, insurance, security, and the risk of obsolescence or spoilage.
- Ordering Costs: How much does it cost to place an order? Include processing, shipping, and handling fees. More frequent orders mean higher ordering costs.
3. Storage and Handling:
- Warehouse Capacity: Do you have enough space to store bulk orders?
- Handling Equipment: Do you have the necessary equipment (forklifts, shelving, etc.) to manage larger quantities?
- Product Shelf Life: How long can the product be stored before it expires or degrades?
4. Financial Considerations:
- Cash Flow: Can you afford to tie up capital in large inventory orders?
- Opportunity Cost: What else could you do with that money if it wasn't tied up in inventory?
5. Supplier Factors:
- Lead Times: How long does it take to receive an order? Longer lead times favor larger orders to avoid stockouts.
- Supplier Reliability: Is the supplier consistent with delivery times and product quality? Unreliable suppliers make smaller, more frequent orders less risky.
- Minimum Order Quantities: Does the supplier impose minimum order sizes?
6. Risk Assessment:
- Obsolescence: Could the product become outdated or unwanted?
- Damage or Spoilage: What's the risk of damage or spoilage in storage?
- Demand Fluctuations: How will you handle unexpected drops in demand if you have a lot of inventory?
Tools and Techniques:
- Economic Order Quantity (EOQ): This formula helps find the optimal order size that minimizes total inventory costs (carrying costs + ordering costs).
- Inventory Management Software: These tools can help with demand forecasting, inventory tracking, and order optimization.
By carefully considering these factors, you can develop an ordering strategy that supports your anticipated sales forecast while balancing cost savings with the risks of holding excess inventory.