While some businesses are preparing for their peak season, others will see it translate into a slowdown in sales. In both cases, businesses share a common need: to adapt their stock to fluctuations in demand. Here are some keys to this.
For many companies, the holidays are the periods of highest demand and turnover, while for others, turnover behaves inversely: activity is down, and sales are down. Regardless of the situation, all businesses have something in common: they must adapt stock to the situation, increasing it to maximise profits in the high season or reducing it to mitigate as far as possible the slowdown in sales and maintain profitability in the low season.
How to maintain profitability during the low season
Those businesses that are not directly or indirectly dedicated to tourism or the hotel and catering industry see how in July and August they reduce their activity or even close for a while. Either way, they will be affected, even if they decide to forgo their holidays. The tactic should be to try to accumulate as little surplus as possible. Here are some tips on how to achieve this:
- Find opportunities in other businesses: Why not share or sell part of the stock of products to other businesses in the short term? If it is clear that there will be losses and they will accumulate, at least, it is possible to try to recover part of the investment by selling those products to other businesses at advantageous prices.
- Look to the past to predict the future. In order to adjust inventory to the holiday season, analyse what these months were like in past years. It will surely give some clues to estimate demand. However, it is important to take into account how the economy has behaved that year, if consumption has gone down, if prices have stayed the same or increased, etc.
- Is the same amount of reserve stock required for the rest of the year? Probably not. So adjust inventory before the holidays to meet customer expectations and avoid overstocking. However, the sales that you have guaranteed by contract must be taken always into account and, under no circumstances, should be neglected.
- “First-In, First-Out”. The first stock that enters the warehouse is the first to be removed. This way can prevent products with a nearer expiry date or those that tend to wear out more from spoiling. Avoiding losses and deterioration and reducing storage costs.
- Value drop shipping. Outsourcing the management and storage of inventory to a third party is a very valuable alternative for the slower months.
How to seek maximum profitability during the peak season
In a radically opposite situation are those companies for which July and August are the strongest months for turnover, for which a poor stock forecast can mean that their profits are drastically reduced. Looking back will also help to estimate the number of products needed to face the high season. In addition to this, there are these recommendations:
Forecasting. Some suppliers may be on holiday, so do not leave orders to the last minute and contact them in advance to find out if stocks are available or if alternatives should be sought.
Negotiate with suppliers. Before the start of the peak season is the best time to establish negotiations with suppliers and have a greater margin and negotiating power. The month before the start of the season is the best time to get prices and therefore lower costs.
Seasonal/reserve inventories. These are different inventory strategies. The forecast or seasonal inventory consists of accumulating during the low season the surpluses necessary for the high season, in this way it is practically sure that the cost will be lower; the reserve inventory is used to prevent running out of products in situations of production stoppages or unexpected increases in demand.
Contingency plan – what happens if sales unexpectedly increase beyond forecasts or there’s not enough space in the warehouse? A contingency plan will prevent being caught by surprise.
Define which products are priorities. In these months when demand will be very high, is essential to be clear about which items are worth adding to the inventory to make sure the are always in stock.