Making The Sales Call –
Inventory Management ( 1,5 Rule ) (E)
by
Laurus Nobilis
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What is the best way of Sales
Order Generation?
Why do we manage the
Inventory? How to avoid Stock-outs? How to avoid
the overstocking?
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Posted:
Mar 2008 |
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During the Sales Call ( Visit to the Customer ), the most important task of
the Salesman is to Generate Order. Here we put stress on
word "Generate" instead of "Take"
order. To take is passive way by definition of the word.
This means that in this case Salesman mostly just pick
the order given and prepared by the outlet owner. To
generate is an active process where the Salesman leads
the process. He assess the needs, propose order
quantity, create back-up Profit Story that will support
him with his proposal, overcome objections and conclude
the sales.
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In order to
really master this process, the Salesman must be equipped with
specific tools and sets of knowledge. One of the most
important things is the skill and knowledge of Inventory
Management in the outlet. By default you may think that
this is the job of the outlet owner, since he orders, he
pays product, store it, sell it further etc. The truth
is that outlet owner is managing too many things at same
time: outlet premises ( rent, utilities, maintenance ),
staff ( employment, training, supervision ), legal
obligations ( accounting books, taxes ) and on top of
all this he have many product categories, among whom
your portfolio is one out of many.
From this it is clear that the outlet owner can never be more focused and
trained than your properly trained Salesman. During the
process of Order Generation, for every SKU individually,
it is important to take many things separately: sales
history, trends and expectations, seasonality, strength
of the brand, safety stock, etc.
The Inventory Management model of "Rule 1,5" offers you a good
balancing of Order Generation, taking into account
History, Trend and Safety Stock. The Formula for the
Rule 1,5 is:
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Explanation: Order is created on the base of the last week sales, but is
increased by 50% for case that sales increase.
This is in accordance with the policy of keeping
of Safety Stock. In case that sales increase in
the next period, the stock is safe until the next
sales visit.
If
the opposite happens, meaning that the sales in the next week is lower
than in previous, there is no fear of overstocking, since the formula will balance the
next order ( reduce it ). The mechanism of the
formula is shown on the example below:
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As you can see the orders are increasing while the sell-out goes up, but
also decreases in the period when the sell-out is
declining. That makes this mechanism of Inventory
Management very useful for both, the Supplier and
Customer, since it secures fluent supply of products, avoid OOS, balance capital invested,
decrease obsolete stocks, increase consumer's
shopping experience and maximize profit.
This model is suitable for all FMCG products. The model is explained in
more details in attached free tool kit.
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