Fundamentals of Inventory Management For Direct Marketers NCOF 2011 Prepared by: George Mollo, 2011, All Rights Reserved www.gjmassociates.com Fundamentals of Inventory Management for Marketers Presented By: George Mollo GJM Associates, Inc. www.gjmassociates.com (845) 627-0788 GJM Associates, Inc. www.gjmassociates.com (845) 627-0788 Introduction GJM Associates, Inc. www.gjmassociates.com is a consulting firm that focuses on all aspects of merchandising operations for direct marketing companies. Our primary focus is supply- side processes, that start with merchandise analysis and planning, includes inventory management strategies and the critical coordination of merchandising, marketing, finance, creative and operations through all elements of the business to the ultimate and profitable fulfillment to a customer. George is also Senior Partner of The Turnaround Specialists, the premier source for rapid, effective and efficient turnaround of multi-channel direct response catalog and retail businesses. www.theturnaroundspecialists.com • 12 years Retail • 3 years Wholesale • 15 years Catalog • 10 years Consultant • 2002-2007 Served as Chair of the DMA’s Catalog & Multichannel Marketing Council • Speak at conferences (User Groups, NCOF, ACCM, Retail Marketing Conference, European Catalog Mail Order Days)** • Contributes articles for trade publications** (**PDF copies available on www.gjmassociates.com ) 2
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Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
Fundamentals of Inventory Management for Marketers
Presented By: George MolloGJM Associates, Inc.www.gjmassociates.com(845) 627-0788
GJM Associates, Inc. www.gjmassociates.com is a consulting firm that focuses on all aspects of merchandising operations for direct marketing companies. Our primary focus is supply-side processes, that start with merchandise analysis and planning, includes inventory management strategies and the critical coordination of merchandising, marketing, finance, creative and operations through all elements of the business to the ultimate and profitable fulfillment to a customer.
George is also Senior Partner of The Turnaround Specialists, the premier source for rapid, effective and efficient turnaround of multi-channel direct response catalog and retail businesses. www.theturnaroundspecialists.com
• 12 years Retail• 3 years Wholesale• 15 years Catalog• 10 years Consultant• 2002-2007 Served as Chair of the DMA’s Catalog & Multichannel Marketing Council• Speak at conferences (User Groups, NCOF, ACCM, Retail Marketing Conference, European Catalog
Mail Order Days)**• Contributes articles for trade publications**
(**PDF copies available on www.gjmassociates.com)
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Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
Performance Indicators (KPI): Separate the “winners” from the “try agains;”and knowing not only what to measure, but also how to measure it and what it all means, is what separates and defines levels of success.
You can’t fix what you don’t measure!!!
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Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
• a quantifiable measurement that can be tracked and evaluated, and that is harmonious with what you want to achieve
• a metric that an organization measures to help determine its progress towards a goal
• a reflection of the tactical performance of an organization; and, is used to substantiate an organization’s objectives
• can be quantitative or qualitative, objective or subjective, although preferably quantitative, unambiguous, and reliable
• a critical measurement of the performance of essential tasks, operations, or processes. A KPI will usually unambiguously reveal conditions or performance that is outside the norm and that signals a need for managerial intervention
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What are the Key Measures?14
Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
– “Hidden Impacts”• Increased list rental costs• Name acquisition costs• List analysis• Overstated fill rates• Lower fill rates and increased overstock across the board
(example: Disney art cell)– greater risk with wide variation in price points offered
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Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
Planning & Forecasting29
Merchandising Strategy30
Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
• Product Categories should be main focus of business– Target 10-12 categories *– Sub-categories define further– Don’t over assort, e.g. Shirts > 40% of total – Avoid “Paradox of Choice” **
• Consistent with Brand• Provide a merchandising “statement” to the
customer
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* Define categories based on product offerings and “end use”. Be careful of “themes” as comparison. ** “Paradox of Choice: Why More is Less,” Professor Barry Schwartz, Univ. of Pennsylvania
Assumptions:• Products fatigue if not reinvented or renewed (especially as house
mailings comprise 60-80% of the mix; repeat web customers)• Best customers need more newness because of their interest in
the book/website and rate of purchasing activity• The cost of paper and postage will continue to increase• Competition will continue to increase in all distribution channels.
(MO/E-commerce).• No more than 1/3 of new products are winners
– Perform above book average– Are profitable
• Repeat items planned at breakeven margin - will do worse• Repeats can suffer 25-35% attrition rates with each additional
insertion
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Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
increased or decreased the impact on sales is equal to between 1/3 to 1/2 of the change. (aka “Rule of 50”)e.g. If we increase the space devoted to an item by 60% we would expect the sales of the item to increase by 20 to 30%.
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* Same is true of circulation, pages, item counts, etc. etc.
Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
“Adopting a well grounded merchandising plan is far and away the single most important thing a company must do for success.
The key to growing sales and profits, providing better direction to the merchants invariably results in better product selection.
More and better products lead to increased response rates, which in turn expand the universe of names that can be mailed/emailed profitably, increasing circulation and sales.”
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Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
Establish a Pre-Season “Kick-Off” meeting• Representatives from all departments
Each Department should Discuss:• Review of post season results• “What worked, what didn’t”• “Direction for new season”• Potential “issues” that might arise
What do we need to get started? (12+ months in advance?)• Timing of Book/Offering (comparability)• Size of book (pages – excluding “sale grids”)• Density – based on historical• Estimated Demand
Merchandisers “complaints”• The “MAP” is not written in stone and can be changed
OTB Provides:• A “budget” for inventory spending• An “overstock” budget
Benefits:• Both coincide with marketing adjustments• “Projections” allow advance warning• Decisions can be made in advance, during season• Avoid spending “budget” twice• Management has the “control” tools
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Fundamentals of Inventory Management For Direct Marketers
NCOF 2011
Prepared by: George Mollo, 2011, All Rights Reservedwww.gjmassociates.com
• Longer Range Planning - Identifies “Horizon” of Need• Plan by “Horizon/Season” rather than “Drop” (especially with web)• Inherent “Creative Merchant” hurdle – overcome with 80/20 rule
• Planning Reduces “hidden costs”• Impact on Creative Schedules• Some DC issues