In
a sense, the Minimum represents a safety margin to cover flukes in
sales or breakdowns in distribution. At the most basic level, you
want your Minimum to be equal to a certain amount of “days of
sales” and for that you need two parameters: a sales period and
a multiplication factor. As we’ve mentioned, the number of days
of sales you want to keep in stock depends on the time it takes for
your warehouse to distribute merchandise to your stores, plus a safety
buffer. Suppose your warehouse takes 10 days to supply your stores
and you want to keep a safety margin of 5 days of sales, then you
would want your Minimum to be equal to 15 days of sales. In this case,
you could take August 1 – August 10 as your sales period and
1.5 as your multiplication factor. This means that the Minimum would
be the number of items you sold between August 1st and August 10th
multiplied by 1.5. If you sold 6 items during this period, your minimum
would be 9.
To these two basic parameters, XpertMartTM lets you add two more:
a lower limit and an upper limit. We use the lower limit to set an
absolute minimum value, even if the product of the two basic parameters
is lower. We do this, for example, if we believe that sales during
the period of analysis were abnormally low for some reason (such as
bad weather) or believe that there is inherent value in having a certain
amount of items in stock, for example, having at least one in each
size of a style to always be able to tell a customer: “Yes, we
have it.” (In some market segments, presenting an image of abundance
is a virtue). Similarly, the upper limit gives us an absolute maximum
value, even if the product of our two parameters is higher. We use
the upper limit for opposite reasons: if we believe that sales during
the period of analysis were abnormally high (a holiday perhaps) or
if we are so certain that we can restock stores quickly (either from
our warehouse or through our vendors) that there is no need to keep
such high levels of stock or if there is a lack of storage space in
the store.
The
following example uses a 1 month sales period, a multiplication
factor of 1.5, a lower limit of 4 and an upper limit of 16:
|
|
Sales
1 Month
|
|
Minimum
|
|
|
|
6
|
|
9
|
|
|
|
4
|
|
6
|
|
|
|
1
|
|
4
|
|
|
|
12
|
|
16
|
|
|
 |
