Catalog Analysis: Manage That Inventory!

Every catalog business has its unique inventory challenges. Apparel catalogs can expect high returns and cancellations — often 25%-30% of sales — and typically have few items repeated each season. Conversely, many business-to-business mailers have a high number of repeated items from catalog to catalog, introducing 20%-25% new products with each book. Regardless of your market sector, though, your inventory is a major asset, and it needs careful attention and management.

Forecasting reports

Most catalog operating systems have some inventory forecasting subsystems and reports that can help the rebuyer project response based on results from just one or two weeks. A sample of a forecasting report is shown below. The report has the following columns:

  • Item number: the actual product number in the catalog or on the Internet.
  • Color and size: if there are choices in color or size, they are shown in these two columns. For instance, note the sizes of the Silk Peacock Dress: 4, 6, 8, 10, 12, 14, and 16.
  • Description: a simplified product description.
  • On order: open orders with vendors.
  • Quality hold: any item that has a quality question that remains unresolved.
  • Accumulated returns: returned items from customers.
  • On hand: product in the warehouse ready to ship.
  • Accumulated issued: products that have been sent to customers.
  • Total B/Os: items in backorder awaiting either an additional shipment of merchandise or cancellation.
  • HFC: hold for confirmation, or product being held by vendor to support the catalog mailing. Usually such HFC orders are time-dated as to when the cataloger must give the vendor a yes or no answer.
  • 86%, 89%, 95%, 99%: the computer’s estimate, based on the seasonal response curve and how many units have been sold at the time the report was compiled, of how many SKUs you’ll have sold at the end of the order curve. For instance, according to the report below, 36 silver caddies have been sold. If the report was compiled when the response curve was 86% complete, the report predicts that 41 caddies will be sold by the end of the catalog’s selling season. If the curve was already 89% when the report was compiled, only 40 caddies are likely to be sold in all.

This type of catalog inventory forecasting report is tied into a stock status report and a historical weekly response curve. Marrying the two reports gives the rebuyer an effective tool to project total sales of any item in the catalog and to manage inventory on a week-to-week basis during the catalog selling cycle.

A sample of an actual catalog response curve is shown in the chart on page 59. But you cannot assume that this response curve is appropriate for your company. You must build a response curve for your catalog, and it is important to be aware of seasonal variations in your catalog’s response.

New vendor checklist

Remember that inventory management begins before you even place an order. From the time you make contact with a potential merchandise vendor, you must ask a series of important qualifying questions. The answers will help you manage the decision of whether to even order inventory from this supplier.

What sort of questions should you ask? The following checklist should help:

  1. Is the vendor financially sound?
  2. Does it manufacture the products or purchase them from others?
  3. Are the products imported or domestically sourced?
  4. Has the company worked with catalog businesses before? Can it provide references from those companies?
  5. Does the vendor understand mail order margins and requirements? Does the vendor understand that catalogs place orders for only 30%-50% of their total forecast and expect the vendor to reserve merchandise on a hold for confirmation/time-dated basis? How well does it know mail order packaging requirements?
  6. What type of exclusivity can your catalog receive on the product(s) you have selected? What if a larger cataloger wants the same item?
  7. What level of backup is the vendor willing to commit to?
  8. What is the lead time for placing reorders?
  9. Does the vendor accept returns? Is there a stocking fee for returned goods?
  10. How does the vendor handle the lower-volume orders typical of smaller and new catalogs?
  11. How does the vendor handle large orders?
  12. Does the vendor have an advertising-allowance or freight-allowance policy? If so, what is it? If not, will it give you better pricing?
  13. Is the vendor still able to make money, even though you have negotiated the “last cent” out of his cost?
  14. What background information can the vendor provide on the relative sales history of items under consideration?
  15. Who will be the vendor’s specific contact with your catalog?

Developing new vendors is like doing due diligence in a public offering or a company purchase. The better the rapport and the more information the product buyer has on each vendor, the better the chance of working successfully in the longer term.

An important thing to keep in mind: Most vendors are not good at keeping information confidential about products sold. If your catalog has a winner, the vendor will want to place it in other catalogs. It will know exactly how many units your catalog has sold and be anxious to “tell the world” of your success.

Placing purchase orders

Let’s assume that as a product buyer, you have investigated prospective vendor and developed the catalog’s forecast and buy plan. Next comes placing the purchase orders.

You should place written purchase orders in sufficient time so that product will arrive at your warehouse two to three weeks before the catalog mail date. This gives the warehouse workers time to receive, inspect, perform quality checks, apply barcodes or item numbers, and place the goods in stock.

Purchase orders should always be in writing, though they can be faxed and confirmed by mail. You should negotiate your advertising or freight allowances before purchase orders are placed. Also negotiate all vendor backup up front.

Ask the vendor for confirmation of the purchase order and a specific delivery schedule. Determine exact pricing and payment schedules for goods. Make certain who is paying shipping and how goods are being shipped. Note: Shipping or freight to the catalog’s warehouse is a part of cost of goods and is often overlooked or underestimated.

Don’t forget about your orders once you’ve placed them. Instead, maintain regular communication with your merchandise vendor. And give copies of all purchase orders to the warehouse or receiving managers so that they can monitor the exact items, the quantities, and the timeliness of deliveries. Also send copies of purchase orders to accounting so that they can control payment to vendors and monitor open purchase orders.

Rebuying activity

Sometimes the rebuying of inventory, which is also called control buying, is considered a function of the merchandising department. Other times, catalogers consider it an analytical function. Regardless of who handles it, rebuying starts the first week that order activity begins. Three types of product situations will quickly become apparent:

  1. Products will be on forecast, or generating as many orders as were forecast in the buy plan. You’ll typically place the second or third order for the product in week three or four.

  2. Products will be ahead of forecast. These “high flyers” need immediate attention. As soon as you can quantify the extra demand, or overpull, of the items, alert the vendor. Then activate reorders or hold-for-confirmation orders. Take action at the earliest time so that you minimize backorders.

  3. Products will be underpulling, or behind forecast. As soon as you can quantitatively confirm the underforecast response, cancel hold-for-confirmation orders and start planning how to dispose of excess product.

Control buying is a vitally important function for most catalogers, and using a forecasting report with a stock status report and order curve history will make this task easier and more efficient. Keep in mind that the more volatile the product line, with multiple colors and sizes, and the longer the vendor lead time in replenishing orders, the more important control buying is.


Jack Schmid is president of J. Schmid & Associates, a Shawnee Mission, KS-based catalog consulting firm.

Catalog Forecasting Report
Catalog #22, Page 8
Item # Color Size Description On Order Quality
Hold
Accum.
Return
On Hand Accum.
Issued
Total
B/Os
HFC 86% 89% 95% 99%
6606 6 KGM Tucked blouse 11 8 14 25 24 23 22
6606 8 KGM Tucked blouse 14 12 10 25 24 23 22
6606 10 KGM Tucked blouse 7 1 24 10 39 38 35 34
6606 12 KGM Tucked blouse 2 20 8 32 31 29 28
6606 14 KGM Tucked blouse 6 1 16 2 20 20 18 18
6606 16 KGM Tucked blouse 5 1 11 4 17 16 15 15
6607 Bird vase 24 2 3 291 4 343 331 310 297
6608 Calla lily candle 750 37 1,971 437 2,800 2,705 2,534 2,432
6612 BK side table 18 2 2 2 2 2
6613 L Beaded sweater 4 57 32 37 35 33 32
6613 M Beaded sweater 7 80 31 36 34 32 31
6613 S Beaded sweater 43 17 19 19 17 17
6614 Crown bookmark 1 1,678 227 263 255 238 229
6615 Pendulum clock 1 17 4 4 4 4 4
6616 Silver caddy 1 7 36 41 40 37 36
6617 4 Silk peacock dress 3 13 1 16 15 14 14
6617 6 Silk peacock dress 5 25 29 28 26 25
6617 8 Silk peacock dress 9 9 27 31 30 28 27
6617 10 Silk peacock dress 8 7 37 43 41 38 37
6617 12 Silk peacock dress 7 47 8 63 61 57 55
6617 14 Silk peacock dress 14 6 38 44 42 40 38
6617 16 Silk peacock dress 10 6 40 46 44 42 40
6618 Curio cabinet 6 4 30 2 3 37 35 33 32
6623 Horn candlestick 36 15 17 16 15 15
6624 4 FER Georgette dress 2 1 21 24 23 22 21

Art or Science?

Underestimating or overestimating the demand for merchandise — new items in particular — is far from rare. While working for general merchandise mailer Fingerhut Corp., we researched for nearly a year the variance from forecast of new catalog items. We were astounded at the level of variance — plus or minus 400%. In other words, if a merchant expected to sell 100 pieces of an item, the actual demand ranged between 400 pieces on the top side to 25 pieces on the bottom side.
JS

For More on Forecasting Systems

Besides the small and large catalog operating systems that have inventory forecasting subsystems, here are a few companies that specialize in this:

Forerunner Systems
100 Shoreline Highway, Suite 310-B
Mill Valley, CA 94941
415-332-4032

Galvin Associates
71 Route 149
P.O. Box 700
Marstons Mills, MA 02648
508-420-8100

Direct Tech
13259 Millard Ave. Ste. 306
Omaha, NE 68137
402-895-2100

Catalog Response Curves
Percent of orders received
Week Spring
Year 2
Spring
Year 3
Fall
Year 1
Fall
Year 2
Fall
Year 3
1 2.7 7.1 1.2 1.7 2.8
2 18.1 20.9 10.7 10.6 10.2
3 18.1 14.1 15.8 15.3 18.5
4 12.2 8.4 10.8 13 12.8
5 6.4 7 7.6 9 10.7
6 9.1 9.5 5.9 6.5 9.5
7 8.3 7.4 7 6.6 7.1
8 5.3 6.6 7.1 6.4 6
9 3.8 4.3 4.8 5.8 4.1
10 3.2 2.9 4.3 5.2 3.5
11 2.7 2.5 3.4 3.7 3.1
12 2.1 2.6 2.6 3.2 2.4
13 1.9 2 2.4 2.7 1.9
14 1.4 1.3 1.7 1 1.4
15 1.4 1.3 2.2 2.1 1.6
16 1 1.1 1.6 1.8 1.8
17 1 1 1.6 1.5 1.2
18 0.1 1.5 1.4 0.8
19 0.6 1.4 1.4 0.5
20 1.4
21 1.4
22 1
23 1.3
24 0.8
25 0.4
Total 100% 100% 100% 100% 100%

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