Short Term Risks of Sales Volume Loss (B)
What are the factors that influence decline of the sales on the short run? How to prevent the loss of sales?
Posted: Dec 2011
The sales loss is worst thing that can happen to the company. Sales lead to profit, that leads to investments, that leads to process improvement and product innovation... all that leads to sales increase and the circle continues.
The smart companies are working hard to make this circle to spin in the right direction. But, there are many things that can slow down or stop this motion in desired direction.
Many things influence market share and sales volume. If we focus on short term problems, than the most usual problems for the company performance are:
Stock out or Out of Stock ( OOS ) situation is the most common problem that is happening to every company. The difference is in the rate of the stock out. Successful companies are trying to keep the stock out at the minimum level
The stock out is caused by two the most common causes: bad forecasting and production stoppages. Supply chain is planning the production of the products according the sales demand. In case that actual sale goes far above the forecast, stock out occurs. Also, if the manufacturing fails to deliver the planned production quantity, due to stoppages, than the result is stock out again. Therefore, the safety stock is necessary for absorbing the risks of demand and production fluctuation. The safety stock is determined based on planning parameters and company policy.
Still, the fact is that is difficult to completely eliminate stock out. This is more based on the financial limitation than on the physical limitation. High stocks can eliminate the stock out, but on the other hand can dramatically increase the financial engagement of inventory and potentially cause write off of expired products
Minor Quality issues can deflect the potential customer. If the product is damaged, dirty or expired, than consumer may switch to competition. This is the short time loss, since company just missed opportunity to satisfy the need of the consumer.
Another chance for sales may come next day, but this particular sale is lost forever. If the problem persist, than there is a danger of long term loss too.
Different events, like weather or economics can cause the losses too. These events are hard or impossible to predict. Still, the company should have developed contingency plans fro these occasions that will minimize the exposure.
Example, if the sales volume is decreased due to external factors, the optimization of activities and related costs can minimize the negative impact on profit.