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A Questionnaire for New Inventory Items

  • Liquidating Non-Moving Inventory
  • Calculating Your Target Inventory Investment
  • Encouraging Inventory Accuracy
  • Vendor Managed Inventory There More To It Than Just Selling Products
  • Make This Year Physical Inventory More Accurate and Less Painful
  • Implementing Effective Inventory Management
  • Why Is Inventory Turnover Important?
  • Do You Monitor Your Residual Inventory?
  • Put Your Time to the Best Use The Myth of Disposing of Dead Inventory
  • There's No Such Thing as Free Inventory
  • Can You Predict if Inventory Will Die in Your Warehouse?
  • Does Your New Inventory Contribute to Dead Stock?
  • The Cascading Effect of Effective Inventory Management
  • Controlling Open-Stock Inventory
  • A Questionnaire for New Inventory Items
  • Liquidate All Slow-Moving Inventory?
  • Analyzing Inventory Adjustments
  • Consider if Some Inventory Will Need To Be Buried
  • The Mysterious Cost of Carrying Inventory

    • In the past several months we've published several articles concerning the risk of new inventory items becoming dead stock. We've emphasized that you must carefully consider each new stocking opportunity. Unfortunately the decisions concerning stocking new products are usually still based on emotion. Several of our customers have asked us to help them turn these emotional decisions into rational business evaluations. In response to these requests we've developed a questionnaire for salespeople to fill out when requesting a new inventory be stocked. In this article, we present the questions contained in a sample questionnaire along with some advice for analyzing the responses. The questions are in bold letters and the commentaries are in italics. A brief discussion on the analysis of the sales of new inventory items follows the questionnaire along with some ideas for determining commission rates for these products.

    Questionnaire

    This questionnaire must be completely filled out by the appropriate salesperson. If a salesperson does not have the information necessary to fill out the questionnaire, he/she has not performed the analysis necessary to properly determine the market potential of the new product. Here is the content of a sample questionnaire, along with some suggestions for evaluating the responses:

    Date

    Salesperson

      What is this salesperson's track record  for introducing successful new products? Speculating on what products might sell (especially products requiring a significant investment) is an activity that should be reserved for salespeople with a history of successful product introduction.

    Location

      What company locations should initially stock the product? Can it be test-marketed in one location?

    Customer or Potential Customers

      If the product is going to be used by only one customer, the risk of the product dying in inventory is much higher than if there were multiple potential customers. If the product is going to be bought by only one customer, be sure that that customer has met his previous commitments for purchasing special order products. If he/she has not, consider asking for a written commitment to purchase at least 75% of the initial purchase quantity.

    Product

    Reason for the product to be added to inventory  that is, how will the customer(s) use the product?

    • In an existing application or process?

      • If the product was previously purchased from another supplier, why did the customer decide to switch vendors? Be sure to have your accounts receivable department perform a credit check with the previous supplier to ensure that they are not on credit hold with that vendor.
      • If the product is replacing another stock product, how will the remaining stock of the old product be liquidated? Has the purchasing department been notified to discontinue or modify the purchasing parameters of the old product?

    • In a new application or process?

      • What is the customer's potential market for the new product? The smaller his/her potential market, the greater the chance the customer will not be able to meet his/her purchase commitments.

    At what rate will the new product be used/consumed?

    • What is the source of this prediction?
    • How reliable has this source been in the past?

    How much product will be purchased in the initial order?

      It is usually not a good idea to purchase more than a projected two-month supply of any new stock item. Because the forecast demand quantities of new stock items are historically inaccurate, there should be a substantial difference in cost to purchase a larger quantity of the product.

    Can a smaller initial quantity be purchased, even at a higher unit cost?

      It is normally better to lose money on a small quantity of a new product (i.e., a test market) than to obtain a low unit cost and end up with a large amount of dead inventory. If the small initial quantity sells within a reasonable amount of time, it is probably safe to issue a purchase order for a quantity that will provide the cost necessary to achieve the target gross margin.

    What is the liquidation cost/value of this material per unit?

      If there is a cost of disposal for expired quantities of this product, the initial purchase should be for the smallest practical quantity for test-marketing purposes.

    Compensation

    Consider a two commission rate structure for new inventory items:

    • If a product's sales meet or exceed sales projections (to date), the salesperson will earn a full commission on all sales of the product.
    • If a product's sales fall below sales projections, the salesperson will earn a half commission on sales of the product, until sales meet or exceed the projections provided by the salesperson.

    Analysis

    Every week a report should be produced listing the status of every product that has been in stock for less than six months. The report should list the following information:

    • Product number and description
    • Current month sales (in units)
    • Sales projection for the current month (provided by the salesperson before the item was added to inventory)
    • Total sales (in units) to date
    • Total sales projection to date (provided by the salesperson before the item was added to inventory)
    • Current on-hand quantity
    • Minimum stock level of the item
    • Maximum stock level of the item
    • Name of the salesperson who requested that the item be stocked
    • Reason why the item was added to stock

    Detailed records should be maintained, by salesperson and customer, for new stock items that do not meet six-month sale projections. Also track, by salesperson and customer, the recovered value and any disposal cost of liquidated quantities of new stock items.