Basic Stocking Levels — A Retail Necessity

By Marcia Kaplan

Originally published in SMART Magazine
We take for granted that both retailers and vendors want to sell products profitably. But with so much to do, itís easy to lose track of some fundamentals.

Retailers spend an enormous sum of money—theirs plus vendor co-op—on advertising. The goal is to draw shoppers into the stores. Itís wasteful to make that investment and then not have adequate stock on hand. Although itís the responsibility of vendors to maintain basic stocking levels (BSLs), stock-outs translate into lost sales for retailers and frustration for customers—who often vent their anger on retailers. By providing accurate and timely sell-through data to vendors, retailers can help them measure how much product they can expect to sell in each retail store. By giving vendors such information, retailers also gain some leverage with them.

At large chains, not all stores move the same volume so BSLs will vary by store location. It hurts everyone to have one store overstocked on a certain product and another with none on the shelves. If chains supply monthly sell-through information to vendors by individual store locations, vendors can help ensure that each store gets the right number. This is crucial for chains that require vendors to drop ship to individual stores.

Most computer product vendors employ a merchandising services firm to visit stores, set up merchandising materials, and check the stock on the shelves.Sometimes they find that the shelves are bereft of the SKU for which they are putting up all that expensive POP material.

Having adequate stock on hand is especially important when a vendor is running a special promotion and/or has purchased an end-cap. For a popular product, stocking levels should be doubled when there is a special promotion. Since many retailers charge a fee for end-caps itís unfair to both the vendor and shoppers (who might have come to a store after reading an ad for the product) to have empty end-caps. Merchandising support firms cannot be in every store every day to make sure the product is on an end-cap or shelf. Retailers might consider having personnel patrolling the end-caps. Or, if retailers feel they lose control of their shelves by having different merchandising firms in and out all week, they might consider hiring one themselves.

Achieving the right BSL can also eliminate overstocking of slow moving products. Retailers will not incur unnecessary inventory costs and can avoid the shipping fees of returning overstocked products. A retailer that is stuck holding excess inventory and has been helpful to a vendor by supplying accurate reports may have the leverage to return the items outside a regular stock rotation.

Keeping track of sell-through can increase the effectiveness of any automatic replenishment system a retailer might employ. Retailers should allocate shelf space to any one vendor in any category commensurate with that vendor's unit sales. If a vendor sells 40 percent of the word processing category, it should represent 40 percent of shelf space.

Maintaining a good relationship with the account representative can help get the products that are in short supply. A retailer with a cooperative attitude gets new products before the uncooperative ones. Remember, maintaining a good relationship with vendors creates a win/win situation.
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