Thursday, April 24, 2008

Not to Much, Not to Little, Just the Right Amount of Apparel Inventory Please

Corky was a new line 15 years ago and we've learned a lot about forecasting demand for production. This post will be somewhat analytical, yes its the engineer in me, but it will be of great use to a new apparel manufacturer.

As a manufacturer you must realize in your first few seasons a retailer can't make a large category commitment to you because there is too much risk of non-delivery. I think the best measure of success during the first few seasons is the number of new accounts opened. Specialty retailers tend to be loyal and if you deliver and the product sells they should come back for the next season. If you open 50 accounts your first year consider yourself fortunate. Also, your first year order size will probably be between $500 and $1000. These two facts should help with projections in your first year of business.

The data you collect in this first year and all subsequent years of business is super critical to the accuracy of projections in future years. Overall retailers buy at certain times of the year and on aggregate we've found that the percentage of orders written each week into a buying cycle is very comparable to previous years.

So how does this work? Here's the problem, the fall buying season starts at the end of January and you need to start ordering fabrics and notions by the end of February in order to deliver product before the back to school season starts (July). But, the buying season doesn't close until the end of April. The data you collected in previous years is your life line to the answer to this problem.

Each season you should tally the dollar amount of orders written during each weekly period and organize this data in a spreadsheet. After all orders (the end of April) are written express each weekly dollar amount as a percent of the total orders written. Then next year you'll know what percent of orders you have written every week into the new buying cycle. For instance the data may say, on 2/28, 35% of the orders were written and you can use this to forecast what the total seasons sales are likely to be and also the amount of fabric and notions to order for the season.

A trick we've learned over the years is to remove large customer orders from projections when ordering raw materials. Why? Large customers with multiple stores or a catalog tend to order a select few styles and colors very deep. If you include these orders in your raw material projections you will end up with a ton of extra stock in these fabrics and styles. I've been there and you don't want to be there; suppliers want to be paid and tons of extra stock is cash not in your checking account.

Over the years we've learned to trust the data. You'll need to build a confidence level with your data, but once you have it use it! You'll be rewarded well. You will have extra fabric to capitalize on hot trends and likewise you will have little fabric for items that aren't ordered frequently.

2 comments:

Anonymous said...

Thanks, very helpful info.
DDot

Water Lion said...

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