Explainer: Understanding the Right Quantity

Ensuring that the quantity is right means that there is quantity available in stock to always pick from. Overstocking means over-producing and expending too much cash, resulting in deep discounts to dump the excess or being forced to write off the disposal, which can also be an environmental issue. Under-producing can leave consumers wanting more (not always a bad thing if handled correctly), and retailer customers disappointed with an underperforming vendor. Retailer forecasts should be reviewed, but vendors should also be doing their own analysis for comparison. Hurricane forecasters, for example, don’t just look at one model track, they look at several.

(I have lived most of my life in Florida, growing up on the West Coast and currently residing on the East Coast in South Florida. For me, it is hurricane season six months of the year from the beginning of June through the end of November. There are 27 different hurricane tracking models—divided into categories: dynamical, statistical, ensemble, consensus—used by the National Hurricane Center. Analyzed in combination the tracks together help forecasters better understand a hurricane’s uncertainty.)

Related: The Perfect Order: Right Quantity

The shipments processed by an ERP (enterprise resource planning) system are recorded and viewed as sales, but let’s not be so quick to judge for the purposes of this discussion. Retailers freely provide information on product sales via the X12-EDI852 Product Activity Data transaction: what sold (which product), how much (the quantity), when (date, or date range such as the week), and where (location, either store or by distribution center).

If the ERP system tells us what shipped to a retailer by date and location, and the retailer is telling us what sold by date and location, then the difference is the quantity of goods that the retailer has yet to sell, or in other words, what the retailer has on hand.

Is the retailer selling products slower or faster than anticipated? Is this happening at certain locations or all locations, even if we can only ascertain generally by distribution center? Should the vendor reduce or increase its manufacturing of some products? How does this vendor analysis compare to the retailer forecast?

(In some retailer purchase orders, only the ship-to distribution center is provided; in other retailer purchase orders, the mark-for store is given. The product activity data by the retailer may be at the distribution center or at the store level. The X12-EDI816 Organizational Relationships transaction can be used to associate distribution centers to the stores that they support geographically.)

Retailer buyers handle a lot of different products by many different vendors. They try their best to stay aware of what’s going on, but they can’t know everything all at once for all of the products that they handle. Vendors need to take responsibility for understanding the pace at which they are supplying goods to their customers, saying something to their buyer if they see something in their analysis. The expectation that retailer software systems are sophisticated, all-knowing entities is, well, true to a certain extent, but also a bit unrealistic at that. Vendors should be performing this type of check-and-balance against retailer reporting.

For retail vendors, the sales activity is available, and analysis of the ERP shipment data is achievable. Make certain that you take advantage of every opportunity to have the right quantity on hand to best guarantee that you can deliver The Perfect Order each and every time. Being proactive and not reactive is one strategy that will help ensure The Perfect Order is achieved.

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