Overcoming the unique challenges facing businesses this holiday season

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October 2021

As many businesses recommence full operations and begin preparations for the Christmas period, the impact of global supply chain disruptions means order fulfilment -the ability to meet customer demand – will require businesses to be agile and prepared for a multitude of scenarios

Retailers, wholesalers and dealerships in all industries are, in some cases, months behind on their inventory, with the earliest expectations for the market to catch up indicated as being early 2023. That, in addition to the pressures of interstate and overseas travel restrictions, increasing shipping costs, vaccine mandates and unpredictable customer sentiment, means it’s critical to avoid any further disruption and ensure you are in a strong position to make up for any lost time.

Here are some strategies to guide you through this year’s holiday season:

Planning seasonal workers

Businesses with seasonal fluctuations rely on short-term labour for the busiest times of the year, especially around the holidays. However, many business owners are apprehensive of bringing on new workers due to a variety of factors beyond their control this year.

Businesses that hire seasonal staff should plan for them by looking at their figures from the last few years. By looking at revenue and payroll data from 2018, 2019, and 2020, they can create a loose mode that will provide some insight into the minimum amount of extra help they will need. Maintaining a strong brand image and promoting best practices to new employees, will be imperative to a successful holiday onboarding.

Maintain efficient cash flow

Controlling business cash flow is, as always, going to be the most essential piece of a successful holiday season. Given the many delays in the global supply chain, planning ahead with finances will go a long way in ensuring the business can pay its bills and remain sustainable.

Defer unnecessary purchases until next year and only place orders that are essential to your success in the holiday season. When you are placing orders, suppliers are often willing to accommodate deferred payment arrangements.

If you have customers who wait for the last minute to pay their invoices, now is the time to break those habits and collect your outstanding payments. By collecting your invoices on time, you will be less likely to fall into a cash crunch.

Here are a few invoicing tips to implement if you have customers who are behind:

  • Issue a follow-up overdue invoice
  • Add a late payment fee on your past due invoices and/or offer a discount for early payment
  • Halt delivery of goods and services until the customer pays their outstanding balances.

Forecasting demand and stocking extra inventory

Demand forecasting is the practice of mapping out future demand for your goods and services based on past sales data. By combining your historical data with overall market sentiment, you can build an effective model to predict what your sales can be and how you should prepare your inventory.

While there are different forecasting methods that each have their benefits, there are five general steps to successful inventory forecasting:

  1. Identify sales trends – Consider historical data to determine the demand for specific products or services during a given time period. The average quantity of daily sales will help to decide how much inventory to reorder and when.
  2. Calculate lead times – Look at previous purchase order receipts to reveal how long your suppliers usually take to fulfil your orders, remembering there may be additional delays during the holiday season.
  3. Determine lead time demand – This is the demand between now and the anticipated next delivery date. Steps one and two have predicted how much stock your business will require and how long it takes to replenish that stock. This needs to be adjusted based on lead time demand, for which the formula is: Lead time demand = (average lead time in days x average daily units sold) / forecasted time in days).
  4. Calculate safety stock levels – Even with careful forecasting, it’s always wise to keep safety stock in reserve to meet unforeseen fluctuations in demand. Your ideal safety stock can be calculated with the following: Safety stock = (maximum daily usage x maximum lead time in days) (average daily usage x average lead time in days).
  5. Set optimal reorder points – Once you’ve established your expected demand, decide on your reorder points to mitigate over or understocking. Your reorder point = lead time demand x safety stock.

Inventory purchasing and the return to full capacity will likely require an upfront cash injection. Given recent disruptions and the current climate, you’re not alone if your business doesn’t have the capital readily available. Thankfully, there are finance options available that your broker can help you with to make sure your business is fully equipped for success this holiday season.

The information in this post is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Geared Finance, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.

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