Caveats: Not a comprehensive list (see title), influenced by my work at RodeoCPG with food, beverage, and wellness brands selling through wholesale distribution, focused on operating metrics, underwritten by an understanding that bad things will happen and you have to deal with them.
- Inventory Weeks on Hand
While just-in-time (JIT) manufacturing is not a reality for many brands, choosing to prioritize the optimization of finished goods inventory throughout the supply chain pays enormous dividends. Admittedly, this practice can go haywire for so many different reasons (production minimums, bad forecasting, deal cancellations, etc), but there is one unforced error that I see over and over again: stocking distributors with way too much, or not enough, product.
Trust, but verify the purchase orders that come into your company before fulfilling them by analyzing the inventory weeks on hand of each SKU in question at each distributor (and distribution center) in question. This is a simple calculation that can be done with data available from most distributors:
Average of case sales per week per SKU per distribution center / (Inventory on Hand + Inventory On Order) = Inventory Weeks on Hand
Your ideal Inventory Weeks on Hand will depend upon several factors, order lead time and order minimums are a few, but a general rule of thumb for non-perishable items should be maintaining 5–6 inventory weeks at least at the wholesale distributors like UNFI and KeHE.
Exceptions should be flagged for explanation and revisions requested if the explanation is not sufficient.
Some of the issues proper management of this metric will help you avoid are: product going out of code at distributors, long periods without a PO that make your account with a distributor go into a negative balance, losing points of distribution due to out-of-stock status, and unnecessary clearance discounts. If you discover that you are long on Inventory Weeks on Hand, consider offering case stack or heavy introductory deals to get the excess inventory sold and back to manageable levels.
Also, investigate the root cause. A couple of regularly occurring root causes:
- Purchase order quantity when the distributor was on an off-invoice discount was too high.
- Quantity ordered for a special retailer’s new item launch or big promotional event was too large.
- Large order minimums + long order lead times are forcing large, infrequent purchases from distributors.
2. Retailer % of Sales
Let me play out a scenario. An email from a moderate-sized retail chain informs you that one of your product lines is being discontinued at their chain. Panic ensues.
- “What this can’t be right”
- “Wait I thought we were doing great”
- “How did that last promo go?”
- “I am going to call (insert buyer name) right now and get this reversed!”
You know that this decision getting reversed at this stage is entering miracle territory. While everyone else wastes time down the rabbit hole, you need to quantify this news. This is one scenario where the retail % of sales comes in handy.
Average of monthly case sales per retailer / Average of total monthly case sales = Retailer % of Sales
This is not only useful to quantify the impact of discontinuation on your production and procurement forecasts but also helpful when:
- You are entering annual negotiations around the amount of promotional support you will provide to the retailer.
- The retailer wants to switch distributors or go direct.
- The distributor opens a new distribution center and announces the retailers that will now pull from there instead of the old distribution center.
- An issue with the retailer is taking an inordinate amount of time for either you or someone on your team.
In all of these instances, retailer % of sales quantifies the impact of this retailer on your sales within a larger context, allowing for quick adjustments and decision-making.
3. Units per SKU per store per week over time
Note: Units sold to customers can be substituted for cases sold to retailers per SKU per store per week if the only available data is distributor data.
“Velocity”, “turns”, “hurdle rate” it seems everyone has their own name for it, but no one argues its importance. The number of units per SKU per store per week that your product sells is the heartbeat of that product and the lynchpin to unlocking other insights like price elasticity, the efficacy of certain promotional programs vs. others, overall product-market-fit within a retailer or market segment, the list goes on.
Total units sold of a certain SKU / Total number of store locations stocking the SKU
From an operator's perspective, it is also the greatest indicator of whether or not you receive the dreaded email alluded to above. There is a velocity threshold that you have in mind for every one of your products at every one of your retailers. Often that threshold is explicitly spoken out loud by the buyer. In other scenarios, you can derive it from syndicated data. The point is that it exists and your product is either above it or below it and trending in a certain direction.
I added “over time” because velocity is always trending in some direction and that tells the operator and the category manager interesting things. For the operator, increasing velocity increases the chances of staying on the shelf provided you are above or near the threshold. Increased velocity after a temporary promotional period bump indicates that the promotion was somewhat successful in capturing new repeat customers. Whereas a reversion to the mean after multiple promotional bumps can indicate that the everyday price may be too high to capture more category share. For the category manager, measuring a product’s trending velocity versus the trending velocity of the category and subcategory within which it resides can add much-needed context to the decision to keep or cut the product.
When it seems like there is never enough time to use data to effectively manage your brand, focusing on just three key operating metrics to start can help you avoid costly pitfalls, make better decisions, and see the forest through the trees. “Inventory Weeks on Hand” helps optimize inventory by maintaining a balance that avoids overstocking or stockouts, minimizing risks like product expiration and out-of-stocks. “Retailer % of Sales” allows brands to assess the impact of retailer decisions, such as discontinuations or distribution changes, and supports strategic planning during negotiations or when resolving issues. “Units per SKU per Store per Week Over Time” lets you know how you are doing versus expectations, and unlocks insights around promotional effectiveness and price positioning.
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