As the name suggests, seasonal inventory refers to the particular items and products whose demand varies throughout the year due to seasonal trends, holidays, or environmental factors. Businesses that deal with seasonal inventory find it difficult to keep the right stock levels, face issues of overstocking or understocking, and struggle to manage their supply chains properly.
In this blog, we'll examine the idea of seasonal inventory, consider why it's significant, and offer practical advice on how to manage it well.
What Is Seasonal Inventory?
Here is a very simple seasonal inventory definition. Seasonal inventory is inventory that has fluctuating demand throughout the year. It goes high and low at particular times of the year.
Seasonal Inventory Challenges
Before buying a stock for your company, you must consider all seasonal considerations:
1. Stock-Outs
Let's say you don't restock your supplies before the peak season starts. In that instance, stock-out situations are more likely to occur, ultimately resulting in upset customers switching to competitor stores.
2. Excessive Stock
In this scenario, your products have little to no demand. Your cash flow may suffer if you keep too much inventory in your warehouses or fulfillment centers. After a while, you might need to sell your inventory by offering clients huge discounts.
Examples of Seasonal Inventory
The following are the types of seasonal inventory:
1. Holiday inventory
The first thing that comes to mind when thinking about seasonal inventory is holiday merchandise. Holiday inventory or merchandise refers to goods sold during a particular festival or holiday season like Holi, Diwali etc.
2. Summer or Winter Apparel
Clothing for the summer or winter is a basic example of seasonal inventory for retailers of garments.
3. Event Inventory
Events like the IPL, T20 Cricket Matches, and Music Concerts are included in the event inventory. It can contain jerseys, flags, pint glasses, decorations, and clothing like hats and t-shirts.
Seasonal Inventory Management Methods
The following list includes a few of the widely used management methods for seasonal inventory:
- Just-in-time inventory (JIT)
- FIFO
- LIFO
- ABC analysis
- Economic order quantity (EOQ)
1. Just-in-time inventory (JIT)
In a just-in-time (JIT) system, you only get inventory in tiny quantities as needed. It is a means of lowering dead stock and holding costs. JIT is beneficial for shops with a sound forecasting system. JIT can lower costs and boost efficiency if you can correctly estimate demand.
2. FIFO
First In, First Out (FIFO) is a common technique for valuing inventories. The first products you receive are sold first when using FIFO. Retailers offering seasonal or perishable goods like apparel should use FIFO.
3. LIFO
Last in, first out (LIFO) is the theory that implies the stock you bought last is the one that is sold first. Due to seasonal demand, you may have to pay a higher price for stock from a supplier. LIFO helps offset the increased cost by moving that inventory first. Since older stock can stay in your warehouse for longer, LIFO is perfect if you offer non-perishable goods.
3. ABC Analysis
The ABC analysis technique divides inventory into three sections—A, B, and C—and then sorts things according to their worth.
- A - High-value items that bring in the most money.
- B - Products in the middle of the market with average sales volume.
- C - Products that are popular but don't make a lot of money.
4. Economic order quantity (EOQ)
You can determine the ideal amount of inventory to order using EOQ. It considers the following three things:
- Demand
- Ordering price
- Cost of holding
It's one of the most difficult models for the companies. It is advised only to use EOQ if your inventory manager has experience with both JIT and EOQ. When used properly, EOQ can lower your holding costs.
Tips to Improve Seasonal Inventory Management
Let's examine a few strategies for enhancing seasonal inventory management so you can satisfy customer demand and improve revenues.
1. Utilize Past Data to Help with Forecasting
Understanding historical sales trends is one of the finest strategies for improving forecasting. By doing so, you can better understand what and when clients are most inclined to purchase a product. Utilizing this knowledge, you can modify inventory levels as necessary.
2. Run a Presale
Running presales is one technique to assess the prospective sales of seasonal items. It enables you to have cash flow before building up your inventory. Once you know what was purchased during the presale, you can adjust your seasonal stock inventory according to this.
3. Bundle Complementary Products
Combining related products into sets is a practical technique to enhance seasonal inventory control. Your season should ideally end with bundled sales. These promotions can effectively shift inventory, cutting storage expenses and unsold goods.
4. Discount Slow-Moving Inventory
Slowly moving inventory reduces a company's resources. It ties up operating cash, consumes priceless storage space, and may result in stockouts.
5. Keep a Close Eye on Inventory Metrics
For effective management of seasonal inventory, keeping track of stock levels is very important.
KPIs to Monitor Seasonal Inventory
A set of seasonal inventory KPIs (key performance indicators) must be monitored in the seasonal inventory in the supply chain effectively. Managers can use these to view the status of each SKU (stock-keeping unit) and product demand. To manage inventory during peak season, logistics managers use the following KPIs:
1. Inventory Turnover
It is an indicator that reveals how frequently stock is refilled during a set time frame. Fast inventory turnover indicates high product inflows and outflows, whereas a low turnover may indicate that the business keeps too many items on hand.
2. Stockout Rate
It displays the proportion of unfinished orders to all orders received. To satisfy client demand, all firms should reduce this rate.
3. Days Sales of Inventory
This KPI shows how long an item is stored before being sold. With this data, businesses may more effectively schedule stock replenishments, identify products that require expensive storage, and judge their profitability compared to competitors.
4. Backorder Rate
Backorder is a variable that keeps track of the number of customer orders that cannot be filled. As a result, maintaining strict control over pending orders is essential to prevent stockouts.
Seasonal Inventory Management Strategies
You must examine the stored SKUs and seasonal changes in demand to manage seasonal inventory:
- Seasonal inventory control is made easier by implementing methods that enable you to forecast product demand.
- The logistics manager must come up with a plan that improves accessibility to the SKUs with the largest turnover using knowledge of the state of the stock and demand.
- Just-in-time(JIT) production is a highly efficient logistics (and manufacturing) strategy in facilities with a high percentage of seasonal inventory. This method is based on the idea that raw materials or finished goods should only be delivered to the warehouse in response to requests.
- On-demand warehousing is another effective method for controlling seasonal inventory. It is contracting out some tasks to a logistics service provider for a set amount of time, including receiving, storing, and processing orders.
How to Manage Seasonal Inventory Effectively
The following are some of the most important strategies to help you manage your seasonal inventory successfully:
1. Accurate Demand Forecast
Proper demand forecasting is one of the best strategies for managing seasonal inventory. To forecast the products that will be in demand, add up your previous sales figures and current market trends.
2. Get Rid of Slow-Selling Inventory
Stock that hasn't been sold in a while shouldn't be kept around for too long because it will eventually go bad. To attract buyers to buy your seasonal inventory, use promotional discounts and run a clearance sale on all slow-moving items.
3. Put Predictive Analysis to Use
A predictive approach or tools allows you to increase your safety supply while reducing what you need to have on hand. If you have warehouses at many locations, make sure your inventory is distributed evenly among them.
4. Improve Order Processing
Improving your order fulfillment process is the most important and practical step to properly manage seasonal inventory. When there is a spike in demand during the busiest season, managing everything from picking out products, packing inventory, shipping, and processing returns, may be difficult. So it is important to put in the effort to streamline order processing.
5. Offer Combo Packages
Customers who think they got a good deal will be more eager to purchase the item. Some businesses use a variety of strategies to reduce the cost of pricey items like mobile phones, televisions, etc., before offering accessories and other add-ons at full price. Using this concept, you can group clothing with complementary accessories or home décor goods with furniture and offer them to clients as a "package deal."
Learn Seasonal Inventory Methods With TranZact
It's practically impossible to avoid dealing with seasonal inventory as an owner of an eCommerce firm. Partnering with TranZact will help Indian SMEs with end-to-end order and inventory management. It will enable business owners to forecast demand accurately and practice the best approach to manage demand fluctuations.
FAQs on Seasonal Inventory
1. What is a reliable seasonal inventory control method?
Implementing a demand-driven approach with accurate forecasting, safety stock allocation, and flexible supply chain management makes sure you have control of seasonal inventory.
2. What are the risks of overstocking seasonal inventory?
Excess inventory ties up capital, leads to storage issues, increases carrying costs, and may result in unsold goods and financial losses.
3. How can I mitigate the risk of stockouts during peak seasons?
Implementing accurate demand forecasting, establishing strategic partnerships with suppliers, and maintaining the right buffer stock can help stockouts during peak seasons.
4. What inventory management techniques are effective for seasonal products?
Just-in-time (JIT) inventory, safety stock, and ABC analysis can optimize inventory levels and ensure timely restocking during seasonal peaks.
5. Should I consider pre-ordering seasonal inventory?
Pre-ordering allows for accurate demand estimation, reduces financial risks, and ensures the availability of products when demand is at its highest.
6. How can I effectively market and promote seasonal inventory?
Use targeted advertising, social media campaigns, email marketing, and influencer collaborations to create buzz and generate demand.
