Manufacturers & Distributors ARTICLE -

Make Planning a Seasonal Product Cycle More Predictable

Target Audience: Manufacturing and Distributing Companies, M&D Industry

Distributorships in the business of handling seasonal merchandise know that correctly managing supply and demand can be the difference between being left with an empty warehouse (ideal) or the burden of leftover inventory (the result of poor planning) after peak season.

Accurately forecasting the demand for seasonal merchandise isn’t easy, because there are many variables to take into account. However, you can better plan the boom and bust cycle of seasonal inventory by studying historical sales data, forecasting future demand and considering the unexpected.

What sold in the past?

Before you can begin more accurately forecasting demand for seasonal products, you must carefully study historical sales patterns, homing in on products that show marked fluctuations in sales. Keep in mind that “seasonal” can have multiple definitions when it comes to product distribution. Consider products that are tied to the annual back-to-school timeframe, a holiday, or a type of weather, sport or leisure activity.

You may find some items span multiple seasonal periods. For instance, the seasonal period for cold weather gear may span fall through winter. And sporting equipment, such as basketballs and footballs, may sell during all four seasons, but sales are apt to peak during the professional sport’s season.

Keeping accurate sales records will help you identify patterns and return on investment for products over time. You can then better determine what types of seasonal inventory are smart investments based on their return.

What will sell (and how much) in the future?

Taking a rolling average of sales during the past six months with more emphasis placed on the most recent month is useful in forecasting demand for nonseasonal products — those that have consistent usage and sales. To help accurately forecast demand for seasonal products, on the other hand, you must take a future rolling average, which involves comparing a future period to the same time period from the prior year, with more emphasis on the month being forecasted.

So, if you’re trying to forecast sales demand for seasonal summer items in June, you could apply an average from May through July of the prior sales year, placing more emphasis on the month of June. But because the sales data will be a year old, it may not reflect other variables that can affect the demand for seasonal products in the current year. Thus, you’ll also need to consider overall trends in the growth or decline of your company’s sales, changing market conditions, competitor activity, and any conflicting events.

In any case, it’s generally better for your bottom line if you sell out of seasonal items rather than warehousing the surplus stock until next year — although, if you run out too early, you’ll risk disappointing your customers, who may then turn to your competitors. Using demand forecasting and inventory planning software can help you automate and simplify the forecasting process.

What’s the X factor?

Combining an understanding of historical sales patterns with the use of future rolling average forecasting and an automated software package, you can significantly improve your distribution business’s management of seasonal inventory.

But because unplanned occurrences are inevitable in a dynamic marketplace, a perfect demand forecast for products isn’t just unlikely, it’s next to impossible. A sudden economic slowdown or atypical seasonal weather, for instance, can put an unexpected damper on sales.

So what can you do to reduce or get rid of seasonal leftovers? Two viable solutions include marking it down sooner rather than later or giving excess inventory to charity.

For the former, applying smaller markdowns while sales levels are still high can help entice customers to buy more, lessening the amount of leftover inventory and improving profitability. If you wait until the end of the season, you’ll be forced to apply big discounts to move items, cutting deeply into your profitability.

For the latter, your distribution business may qualify for a tax deduction on seasonal inventory that you donate to a qualified charity. The available deduction will vary depending on factors such as the structure of your distribution business and the type of inventory donated. Your tax advisor can help you properly determine the applicable deduction.

Fewer variables, greater benefits

When handling seasonal merchandise, it can be the best of times (when demand is high) or the worst of times (when your warehouse shelves are full of products no one wants). Successfully planning a seasonal product cycle is no easy feat, but with some extra legwork you can reduce the variables and reap more of the benefits.

Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.

related links

M&D Newsletters & Articles 

Tax Services

Audit Assurance and Accounting

Industries

Tax and Business Updates