|Q4: Can you examine the phenomenon of shortages (missing items)? On an average, what % of items is missing from your shops?
A: While they knew shortages are prevalent, they did not have a clear idea of the magnitude. Speculation was it was probably around 30%
Q5: How much do you lose in sales because of the unavailability of products?
A: <30 %, because many times when a customer who can’t find an item will still buy an alternate product.
Disagree. I do agree some customers do buy alternate, but there is another factor that caused me to believe that lost sales are much higher than % of SKU’s that are missing.
Q6: Is there a pattern amongst the items that are missing from the shops?
A: Yes, the demand for these items > Forecast
Q7: Can we assume the demand for the missing items in stock is greater than the average demand of most of the items available?
A: They had to agree with most of the items in stock in the stores are relatively slow movers.
Q8: Doesn’t mean that the effect of lost sales is greater than the percentage of missing items?
A: Many speculated that the lost sales may be as high as 50%
Q9: If we take your existing sales as the baseline, doesn’t it mean that the amount you lose due to shortages is close to what you are selling now?
A: That shook the team a bit considering the magnitude of the impact of missing items.
Reflecting on this, attention moved to the warehouse. The missing SKUs from the warehouse are erased from the list of items the store should hold. It is important to investigate the additional impact of these shortages.
Q10: What is the lifetime of your products?
A: 6 months. We have 2 seasons in a year and we order and buy in batches of 6 months.
Q11: If we go to your central warehouse 3 weeks into a season, will I find missing SKUs?
A: Yes definitely. Also, these are hot sellers where the demand > forecast.
Q12: How much of sales is lost from these items not being available?
A: They were not clear. If an item was depleted in month 1, then lost sales will be 5 months, if it is depleted in 2 months, then lost sales will be 4 months and so on.
Q13: How many items get depleted after 3 weeks? After 3 months? After 6 months?
A: No exact numbers by time frame but an estimate of SKUs stocking out in 3 weeks is roughly one third.
Q14: Should we not combine the impact of missing items in the warehouse with the missing items in the store?
There is a realization in the room that they were dealing with a phenomenon which is more than the total realized sales now.
Q15: Can you convert this realization to bottom line impact? If the company eliminates shortages, how much should we expect Net profit to go up?
A: If by a miracle, shops will not face any shortages, the brand need not increase infrastructure, hence resulting increase in sales will have a proportional impact on the bottom line.
It will be good to pause here and see the profit generated from fast sellers vs the rest of the items. A representative structure of a brand with 3.3 cost to MRP multiplier would look like this.