Reposting a blog we did in collaboration with FoodBevy for emerging brands.
What comes first in CPG, the sales or the inventory capacity? If you’re having trouble aligning inventory needs with demand, you’re not alone. Demand planning for emerging CPG brands is extremely challenging and can have huge impacts on cash-flow. Here are 5 things to consider when planning your inventory needs:
New stores will want you to get product on the shelf quickly after approval. This could mean 3 to 12 weeks. Depending on the size of the account, this could mean delivering anywhere from 3 to 3000 cases of product. Be sure you’re clearly communicating with your buyer on the initial size of the order, which SKUs, and your manufacturing lead time to make sure you’re both aligned with the same expectations.
What’s more difficult to measure immediately is the rate of reorders, which will totally depend on your initial velocity. Be careful of one or two large initial orders followed by a steep drop-off. Before a retailer knows your velocity, they will purchase based on an initial guess attempting to stay in stock.
Take into consideration your inventory needs for both the initial and the reorders for the first 3 months when planning inventory. Overestimate and you’re left with excess inventory that you’ll need to sell elsewhere. Underestimate and your buyer will be upset.
Once you’re going with a store, you’ll start to get a sense of the reorder frequency. Plot this as a separate new business line item throughout the year so you’ll understand how much inventory you’ll need and when.
Are accounts ordering once a month? Once a quarter?
Ice Cream has a higher velocity in the summer months, while baking items will have higher velocity in the winter holiday months. It can take some time, but determine the unique seasonality for your products.
You’ll also want to consider the regionality for your distribution. An ice cream brand selling only in Southern California will have a lower winter drop-off than a brand in New York because of weather differences. Regional cultural differences also play a role in demand.
Whether you’re planning in-store promotions or launching an Amazon Prime Day deal, you’ll want to plot out your promotional calendar for the year and plan to have enough inventory to account for the estimated sales lift.
That said, it’s impossible to determine exactly how much you’ll sell for any given promotion, so use historical information as best as possible. As entrepreneurs, we are prone to overestimating way more often than underestimating, so I recommend going with a conservative sales forecast unless you have the cash on hand to survive a big bet.
We’ve seen promotions can have a very large effect on demand, this partially has to do with consumer lift, but because distributors may take advantage of lower prices to buy ahead. When running promotions be careful not to let distributors double dip and take advantage of a promotion you're running AND a promotion happening on the retail level.
Occasionally you’ll have an epic press opportunity that will drive sales. This could be Shark Tank, Oprah‘s Favorite Things List, or Good Morning America.
Sometimes we can’t predict when they will publish, but be sure to plan if you have any heads up. Talk with other founders who had the same opportunity to see what a potential sales volume could look like.
If you don’t have enough inventory, be sure to have a way of collecting visitor emails so that you can notify them when you’re back in stock.
It’s good to have a baseline plan when orders and opportunities are constantly flying in. Make calm of the noise by properly planning for the entire year and having a system to account for any changes and fluctuations. You’ll be much happier when scheduling manufacturing runs if you have a good idea of the inventory volume you’ll need.
Want to segment out demand automatically? Use Pantry’s AI-assisted forecasts to coordinate demand across sales and operations