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How to evaluate the effectiveness of procurement
24.09.2013 11544

How to evaluate the effectiveness of procurement

To form orders for the next season without analyzing the results of the previous season is to step on the same rake. If in the near future you want to avoid excessive amounts of leftovers and get even more profit, be sure to evaluate the effectiveness of past purchases. The specialists of the Clever Fashion marketing company tell you how to do this.

What should be leftovers

The effectiveness of seasonal purchases is assessed mainly by stock balances. They should be analyzed in order to avoid mistakes in the future. There are always balances, so the success of sales can be determined by their number. 10-15% of the collection in stock is a natural norm. If the percentage is lower, then this usually indicates a lack of stock: you could not fully realize the full potential of your outlet and get the maximum profit. And the balances exceeding 15% of the total seasonal purchase are lost profits, dead cargo, goods that now have to be sold at an unprofitable price, losing money.

As you can see, there can be two main mistakes: excessive reserves and, conversely, too scarce. In either case, it is easy to succumb to temptation, but do not seek to provide the buyer with absolutely all the possibilities of choice, or, on the contrary, buy only those models that will be guaranteed to be sold. Guarantees are possible only if you are counting on the minimum profit - but what seller doesn't like to take risks in order to “drink champagne” later? In addition to the fact that an overly rational approach is often alien to the nature of an entrepreneur, it also harms the reputation of the institution. The client comes today, but you sold the only pair of his size of the model of interest yesterday, and the next one is possible only on order - will the buyer wait for the shipment? Will he come back to your store again, knowing that he is playing a kind of roulette in this way, and the chance of winning is small? You yourself know the answer.

Easy way to get around the rake

To avoid making mistakes during the upcoming purchase, figure out what you were wrong the last time. A good manager works according to the so-called Deming cycle: Plan-Do-Check-Act (“Plan, implement, verify, react”), and if at the beginning of the season he planned inventory, and then sold, now - before a new purchase - it’s come time to check. There are several methods for checking the effectiveness of the assortment matrix: for example, XYZ analysis allows you to assess the stability of sales by product groups and predict the nature of consumption in the future period, and ABC analysis identifies the most important product groups, subgroups and brands in the total profit of the enterprise (read more about these two types of analysis in the article “Three Keys to an Effective Assortment” published in Shoes Report No. 105) Clever Fashion CEO Maria Gerasimenko recommends starting with ABC analysis. It is based on the Pareto principle, according to which a relatively small group of goods and customers (up to 80%) brings 20% of profit, and all other goods or customers (80%) bring only 20% of profit. According to this principle, all inventories can be divided into 3 categories:

And - the most valuable, which form 20% of stocks in stock and 80% of sales
In - the golden mean, 30% of stocks in a warehouse; 15% of sales
C - less valuable, 50% of stocks in a warehouse; 5% of sales.

To determine which group this or that product belongs to, make several tables. To do this, you will need sales data for the season. You can create separate tables by model, size range, major customer groups or suppliers. In the tables, indicate how much profit each of the objects brings, what is the sales volume, how many orders fall in this season for this group, how many went to the rest of the warehouse in this category (an example table is attached to this article).

It is most convenient to create such tables in Excel, where you can rank all the objects according to the factor of interest to us or highlight them with color. In this case, attention should be paid to the columns “Number of purchases per season” and “Total turnover by model”: by comparing the data from these columns, you will be able to distinguish objects of groups A, B and C. In the purchase for the next season, pay special attention to the categories that fall into Group A: their share in the assortment can be safely increased. Goods from the category of group B form stable sales, so they also can not be greatly cut. A logical question arises: should we get rid of goods of those categories that fell into group C? The answer is that you shouldn’t completely get rid of it, since no matter how you cut this group, any assortment will still be divided into strong and weak links according to the Pareto principle. In addition, some products from group C are interconnected with goods from groups A or B, and reinforce their sales. So get rid of only completely unprofitable categories, and in the next purchase try to partially fill the group With experimental models, the success of which you doubt, but want to take a chance.

Ideally, when starting a new purchase of shoes, you should already have an idea about which models will fall into group A, which will constitute stable sales of group B, and which models you don’t have to rely on, and they will end up in group C. Such foresight comes with experience , knowledge of their customers, understanding of fashion trends and regular assortment analysis.

To form orders for the next season without analyzing the results of the previous season is to step on the same rake. If you want to avoid excessive ...
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