Managing Stock in Trade

The following metrics for stocks in trade are useful in managing the stocks in the lower trade:

• Forward stock: Stock in the store’s selling area which can easily be accessed by customers. Includes stock placed on shelf, on special display, on the shop floor space, inside chillers, freezers, cabinets and so on.
• Total stock: Stock in the store’s selling area plus stock in the backroom (stock room).
• Stock cover (stock cover days): Number of days that stock would last, assuming sales continue at the same rate.
• Out of stock: Percentage of stores handling the product in the audit period but having no stock at the time stock was counted.

These metrics are supported in the retail audit data for the lower trade (non-scan) channels. For scan channels, though retailers keep track of some of the metrics, the information may not be readily available. In sectors such as apparel, footwear and luxury goods, where some retailers are adopting radio frequency identification (RFID) tags for storing electronic product codes (EPC), the process of collating and maintaining this type of information will become much easier.

The danger signals that manufacturers and retailers need to take note of are declining forward stock and growth in the incidence of stockouts. Both metrics are indicators of supply issues or loss of distribution.

Stock cover needs to be substantially greater than the manufacturer’s sales cycle or retailer’s procurement cycle. Whenever stock cover days fall below the average sales cycle, incidence of stockouts will soar.

Trends in forward stock and out of stock distribution reveal distribution and stock management issues in trade. Exhibit 30.10, for instance, depicts a brand that is experiencing supply shortages resulting in reduction in inventory and high stockouts. From January to September, stocks in the channel have depleted from 2,176 units to barely 251 units. During the same period stockouts have soared from 11% to 24%.