Managing Stock in Trade

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

• Forward stock: This refers to stock in the store’s selling area which can easily be accessed by customers. It includes stock placed on shelves, special displays, shop floor space, chillers, freezers, cabinets, and other visible areas.
• Total stock: This represents the sum of stock in the store’s selling area and the backroom or storeroom.
• Stock cover (stock cover days): This metric calculates the number of days that the available stock would last, assuming sales continue at the same rate. It provides an estimate of inventory sufficiency.
• Out of stock: This measures the percentage of stores handling the product during the reporting period but having no stock available at the time of stock count. It indicates instances where demand exceeds supply.

These metrics are commonly used in the lower trade (non-scan) channels, and retail audit data supports their analysis. While some retailers in scan channels track these metrics, the information may not be readily available. However, with the adoption of technologies like radio frequency identification (RFID) tags, collating and maintaining such information will become easier in certain sectors.

Declining forward stock and an increase in stockouts are warning signs that both manufacturers and retailers should pay attention to. These metrics indicate potential supply issues or a loss of distribution.

It is important for stock cover to be significantly greater than the manufacturer’s sales cycle or the retailer’s procurement cycle. If stock cover days fall below the average sales cycle, the incidence of stockouts will soar.

Observing trends in forward stock and the distribution of stockouts can reveal supply and stock management issues within the trade. For example, Exhibit 31.12 illustrates a brand experiencing supply shortages, leading to a reduction in inventory and a high frequency of stockouts. Between January and September, the stock levels in the channel decreased from 2,176 units to just 251 units, while stockouts rose from 11% to 24% during the same period.

By monitoring and analysing these metrics, manufacturers and retailers can identify potential challenges and take proactive measures to improve stock management and ensure adequate supply to meet customer demand.