Many contend that today’s inventory blob traces to the over production of products that consumer’s spurn, or which don’t hit target profiles.
According to Matt Lamers Canada’s finished goods inventory stands at ~1.5 billion grams, a number that has remained relatively static over the past couple of years. Even today, no more than 50% of all flower makes it to the consumer’s home.
Much of this obsolete inventory is a holdover from earlier production snafus. But a lot of this product is relatively current.
In my view, other factors outside of quality and features are culpable-
--> Poor forecasting overestimates demand
Many firms lack quality demand planners, data and tools. Cultural norms feed the beast: marketers can be overly optimistic with new product launches; salespeople will bump up volume forecasts to ensure job security. And almost everyone is too hopeful when it comes to growth and addressable market size.
--> Higher yields drive higher supply
Many cultivators have significantly upped their production despite reducing their canopy size. Only so much of this volume can be absorbed by the channel, especially if you don’t want to kill your margins or brand image via hasty discounting.
--> Buyer fickleness amplifies risk
Consumers, retailers, and wholesalers will unexpectedly reduce purchases when their needs change, market prices decline, or competition makes a bold move. Production plans are also highly dependent on the (varied) accuracy of their customer forecasts.
--> Category disruption
Cannabis is no stranger to disruptive forces. Consider the rapid volume decline of standard pre rolls when infused products were introduced.
Fortunately, high inventories can be pre-empted and mitigated by-
1. Establishing enterprise-wide visibility into your demand and supply.
You will need to ensure the data is accurate and timely. If your business doesn’t have a robust ERP system, its time.
2. Fostering tighter links between key players
There should be regular communications and data exchanges between sales, marketing, production, finance and your customers, to pre-empt & identify problems and then deal with them expeditiously.
3. Recognizing the value of ‘out of stocks’
In a high interest rate environment, the benefit of lower inventory levels often exceeds the cost of disappointing consumers/retailers. Plus, introducing scarcity can help support higher pricing and your brand image.
4. Address issues, quickly
When price levels are declining and cash is scarce, it’s better to eat your inventory shit sandwich (ie write offs and stock-clearing discounts) early on.
5. Deal with the root causes
Pervasively high inventory may trace to SKU proliferation and broken performance measurement systems.
#inventory #stock #operations #planning