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Optimizing Inventory with XpertMartTM
If the Shoe Fits Then Wear ItIn 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 30th 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
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