The worst time for your company to deal with overstocked product is during its growth stage. Companies get used to selling through their product. They build projections based on what has happened. Then those projections turn into orders. Suddenly, they have far more product than they can sell. Marketers need to start thinking about the product life cycle again.
The product life cycle has 4 stages. Introduction, growth, maturity, and decline. Products get introduced to the market and then grow. Eventually, they reach maturity and then start to decline. Most companies think that their product will continue to grow indefinitely.
What is the growth stage?
The product life cycle is pretty self-explanatory.
Introduction.
Your product is introduced to the market. Most companies will be conservative when it comes to stocking the product. Then. Your product takes off. You get more requests from retailers. You see increased interest on social media. Your product starts gaining more traction online. People want more product.
So what happens? “Well, what if we run out?” Well, your company will order more product. And then more product. And more product.
This is where your company should start becoming more conservative with inventory.
If your product sold X amount last quarter. You should start asking yourself. How are we going to support selling X plus 20%? Your company shouldn’t be thinking about growing your sales by 20%. You should be asking, how are we going to sell what we currently have? Many things can cause your product to start declining in sales. People get tired of the product. Competition comes in. People find other things they enjoy.
Once you hit maturity, your sales will start to plateau. That leaves you with all that extra inventory you ordered.
You are always trying to meet yesterday’s demand.
When it comes to product, there is always lead time. You have to create product. Get it to your distributors. And then have your distributors ship it to your retailer.
By the time that product gets to your retail partner, you are meeting the demand of your customers from a couple of months ago.
This is a huge mistake that many companies make. They start ordering more product because they can’t keep their shelves stocked.
Once your product hits maturity, you will have too much product to sell.
You need to watch for signs your product is hitting maturity. You should notice this by monitoring your search growth. Social media traction will also peak, and you’ll start to see lower repurchase numbers. These are all signs that your product is hitting maturity.
Marketing should know this before the supply chain does.
Your marketing team should be monitoring these metrics as well. It’s not just the supply chain team’s job. Marketing can help forecast your product better. They know when people are searching for your product. They know how many people are engaging on social media. They know your CPA and how many people are purchasing your product.
Your financial team can help you with this too. They can look at your shipment numbers and orders. Just remember your sales aren’t growing at the same rate.
Your company is shipping more product than you need. Just because you have more orders doesn’t mean you’ll keep selling more product. You need to ask yourself, when is my product going to start declining?
Make sure that you know what metrics will show that. And have them in place before your product reaches maturity. Don’t just increase your product orders because you had more sales. Look at your rate of sales. Are your sales still growing at the same rate? If not it could be a sign that your product is reaching maturity.
Your company doesn’t have to run out of product.
It may be cheaper for you to have no product in your store than to have too much. Once you have too much product on hand. Your hands are tied. You will have to markdown your product or find another way to sell it.
Try not to always focus on lost sales when your product is growing. Have some slack in your orders. Once your product reaches maturity, make sure to decrease your orders.
Your company should balance not having enough product with not having too much.
Once your product reaches maturity, you should start decreasing your inventory orders.
Your marketing team should help you with this as well. Marketing shouldn’t only create demand for your product. They should be able to tell you when demand will decrease. Marketing should work with your supply chain team to forecast your product. They should communicate with your S&OP team and tell them when to expect your product to decline.
Marketing should be saying, “Our product is still doing great, but here are some signs that we are reaching maturity.” Marketing can do this by monitoring their analytics and telling you when they think your product will hit maturity.
Hopefully you never run out of product. But it’s better to have no product than to have too much. “We need to order more product because we’re selling everything”.
Some days that is true. Some days your product will sell through. But you should always know when your product is reaching maturity. Stop looking at the product life cycle as just a graphic that you learned about in marketing school. Use it to your advantage.
Your company will grow. So make sure you don’t have too much product to sell.
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