Tedi Ago

Mila Alborghetti
Eva Dal Cin
Elisa De Marchi
Giovanni Lazzaretto
Giorgio Lionetti
Riccardo Maria Visintini

SDG CASE

1. How can you help the company increase sales in terms of quantity, based on
the information you have available?

To understand how to increase company sales, we undertook the following steps:

● Divided the database for each individual store;

● Utilized a VBA code to add 6 empty rows to separate each size of the SKU;
● Employed a VBA code to fill out missing data by averaging between the last
and first known values for sales quantity and on hand quantity;
● Determined the quantity to cover stock-outs using a Simple Moving Average
based on the preceding 5 periods.
We accomplished this by:
- Using known data (“Sales” column) when available and when there is no
stock-out;
- Using forecast data for stock-outs;
- Using sales data that we calculated when actual data were not available
(missing data) and when there was no stockout in that period.
- Applying forecast data for missing data with stock-outs.

Given these conditions, we were able to identify the correct values for the
computation of the forecast. Then, it could be possible to apply all the models such as
weighted moving average, exponential smoothing model and simple linear regression.

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Here's an example of a partial calculation of the simple moving average for the
quantity of potential sales in Store 1.
In this example, in week 47, there was no available data, so we estimated Sales and
On hand quantity. As shown below, there is a stockout in that period.
So, the formula we made has to forecast the potential sales also in that period, as it did
in the previous weeks where there were stockouts in data already available.

In this case, for instance, the value "0.41472" in the column named "potential sales in
missing data stockouts" equals the average of the preceding 5 sales values (both
potential and actual), thus concretely:

where psmds = potential sales in missing data stockouts.

The graph below shows the forecasted sales quantity calculated with the Simple
Moving Average.

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Graph 1.

In column O (“AGGREGATE ADDITIONAL POTENTIAL SALES FROM

STOCKOUT) for every store it is reported the quantity that the company should
have produced in order to not have stockout.

Additionally, in another graph, we've plotted the stockout quantities alongside the
actual sales quantity. Upon analysis, we observed that the trend of forecasted stockout
quantities are shifted to the right compared to the total forecasted sales quantity. This
discrepancy signifies that during peak periods, around week 44, the company
experiences elevated sales activity, depleting inventory levels rapidly.
Consequently, insufficient inventory remains for the following weeks, resulting in
stockout periods.
Also, when the forecasted sales quantity is low we did not find a high level of stock
out.

This is an example from Store 2:

Graph 3.

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This analysis can be useful in identifying periods of high stockout occurrences to
mitigate the costs associated with stockouts, such as rush orders, lost sales, and
potential damage to brand reputation. By optimizing inventory levels, companies can
reduce carrying costs while ensuring product availability.

2. Given Buying, would the company be able to cover the potential additional
sales calculated in the previous question?

Given the evident constant presence of stockouts in almost every store, according to
our forecast, the company would not be able to cover the potential additional sales.
This is due, on one hand, because of lack of inventory at the moment of the demand,
on the other hand, because of a wrong previous forecasting of the buying quantities.
In the graph below the forecasted sales quantity (actual + missing data + potential)
and the buying quantity are reported in the same chart and are referred to the same
SKU.
In this way it is possible to notice that the buying is usually not sufficient to cover all
the forecasted sales quantity.

Graph 2.

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Having both the total sales and the number of buying quantities for each store allows

us to identify the products that have been stocked in inventory but remained unsold

throughout the period. By doing so, we can further refine our forecast on buying

quantities, taking into account not only stockouts but also considering those products

that have been purchased but not sold. This approach may enable the company to

abstain from purchasing those products that have been acquired but not sold, leading

to a reduction of inventory and logistics costs, increasing profits.

3. What would be the increase in value if the company were able to record
potential sales?

In the third table, we reported the quantities we should have had additionally to avoid
stockouts and therefore cover the potential additional sales.
Then, we calculated the missing revenues due to the lack of products in inventory by
multiplying the price of every SKU per quantity of products unsold due to lack of
on hand products (due to stockout).
To better understand, here is an example from the Store 2:
We added the column “QUANTITY IN STOCKOUT FOR EACH PRODUCT” which
reports the forecasted sales quantity that the company didn’t sell because there were
no products on hand, so it is the quantity to add to the buying quantity to cover sales
and to not have stockout.
The following column P “MISSING REVENUES BECAUSE OF STOCKOUT”
represents the missing revenues calculated by multiplying the price for the quantity of
the 5th column.

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The increase in value if the company were able to cover potential sales is reported in
column P for every store.
We found that the missing revenues from stockout counts for 11% of the revenues
from actual sales.
So, summing up the “MISSING REVENUES BECAUSE OF STOCKOUT” (missing
revenues) of every store, we found that the total increase in value would be:
$344.897,52.

4. Given actual and potential sales, can the company identify seasonality in
sales behavior? What advantages could this information provide?

To identify seasonality in sales behavior, a table for every store was created.
In the first column the periods (weeks) are represented.
In the second column, using a SUMIF function in Excel, we reported the
corresponding forecasted sales quantity calculated before.
Then we create a graph to better visualize the data.

Here is an example from Store 2:

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 Graph 4.

Then, we aggregate the graphs of each store in one comprehensive graph.

Graph 5
Here, as in Graph 1, we observe a peak around week 44. This information can be
useful for the production planning, ensuring that the company has sufficient stock to
meet the increased demand without overstocking and tying up capital unnecessarily.
With knowledge of the peak demand period, companies can optimize their supply
chain processes to ensure timely delivery of materials and products, reducing the risk
of stockouts or delays.
Additionally, planning marketing campaigns or promotions distant from peak demand
periods can help smooth out demand fluctuations. By strategically timing promotions
during periods of lower demand, the company can stimulate sales during slower
periods, thereby balancing out overall demand throughout the year.

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5. Theoretically, could the company use information from potential sales to
scale purchasing for the following season? What if the products were no longer
the same?

We started with the assumption that the company markets luxury products, which
implies expensive items with slightly different market characteristics compared to
standard products.

Even for a company selling luxury goods, there are benefits in studying sales history
to plan orders and purchases for the upcoming season. Data on seasonality and trends
are certainly essential for managers to anticipate the future.

While the specific products may change, the principles of purchasing remain
consistent. The company would need to adjust its purchasing strategy to align with the
requirements of the new products. This might involve sourcing new suppliers,
negotiating contracts, and determining optimal inventory levels based on forecasted
demand.

Collaborating closely with suppliers becomes even more critical when introducing
new products. The company should communicate its requirements clearly to suppliers,
ensure timely delivery of materials, and maintain flexibility to adapt changes in
product specifications or demand fluctuations.

However, when dealing with luxury products, managers might have a lesser or at least
different interest in relying solely on historical data. This is because luxury products
can be closely tied to fashion, which can change rapidly and unpredictably. Therefore,
it will be equally important to rely on the experience of managers who have been
working in the industry for years. This includes considering techniques such as limited
production runs to maintain the brand's status symbol.

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Additionally, it is crucial to factor in the influences on demand for luxury products,
such as the effect of fashion trends, the aspiration for prestige and exclusivity, as well
as the impact of events and economic changes on consumer behavior. Moreover,
emphasizing the importance of flexibility and agility in inventory planning to adapt to
rapid changes in the luxury product market.

6. Which distribution model would you propose to the company to cover

potential sales and manage the trade-off between logistics cost and margin?

To cover potential sales, it might be worthwhile for the company to consider a model
that, for each stockout, is able to analyze other stores (in the previous week) and
identify which store has an excessively high “On Hand” that, according to forecasts,
will not be sold. By doing so, this logistics model could also improve the company's
responsiveness because when a store runs out of a product, the company knows from
which store to request it if the warehouse is out of stock (thus covering itself if the
buying quantity forecasts are incorrect).

Also, if the stores are relatively evenly distributed and equidistant from each other, a
full mesh network could be advantageous. This configuration would ensure direct
communication between all stores, facilitating rapid information exchange and
inventory transfer when needed. However, for larger networks with numerous stores
that vary significantly in distance or importance, a partial mesh network might be
more practical.

So, if we suppose that the company’s stores are not equidistant, a partial mesh
network would be a better solution. In this network, stores with high traffic or
strategic importance could have direct connections, while others rely on indirect
connections through intermediary stores. This approach reduces the complexity of
direct connections and allows for efficient communication while still maintaining

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essential connections for timely inventory management and coordination between
stores.

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