How to save $1M in supply chain inventory write-offs

For supply chain planners, product transitions are increasingly common. Driven by commercial team requests, some are meant to drive sales — product renovations, limited editions, customer-specific offerings — and others are mandated by regulatory changes or cost-cutting measures.  

Product transitions come in two forms. In a soft transition, such as a graphics change on a product package, often the unique universal product code (UPC) can remain the same, mitigating supply chain and logistics challenges. What brings dread to the ears of any supply planner is a hard transition, where a new UPC is required due to material product changes. This prompts the potential for inventory excess and write-offs when the customer starts to order the new item.  

I’ve seen product transition outcomes ranging from good to bad to ugly. Companies have saved over $1M in budgeted write-offs during a major product line transition, or when mismanaged, individual SKUs can amass hundreds of thousands of dollars in excess inventory.  

Luckily, the key to achieving a good outcome isn’t rocket science — it’s collaborative business planning between supply chain and commercial functions. There are three critical steps you should follow to profitably execute product transitions.
 

Step 1: Set a clear transition date

Once the manufacturer plans a transition, don’t delay announcing the transition date to your customers. Here is where you as the supply planner need to take action to avoid a common pitfall: assuming demand remains stable until the transition date.  

Like you, retailers will also start to ramp down their inventories of the old products at both retail and distribution locations leading up to the transition date and stop ordering the old product.  

Meet with your demand planner and ensure they update their forecast and statistical planning models to ramp down demand as the transition date approaches to avoid building excess inventory of soon-to-be-obsolete products.
 

Step 2: Work collaboratively across your business

As a supply planner, you must balance customer fill rate and inventory availability with overproduction and waste. In a complex product transition, where multiple products will change, each brings its own random demand pattern. Not all SKUs will sell through at the same rate at the same time.  

At this stage, lean into collaborative business planning. Working with your factory or supplier, build inventory of the new items well in advance of the transition date. This step ensures that, should the inventory of one of the existing items run out early, as you ramped down the forecast, you have a solution to ensure customer fill rate by switching to the new item early.  

You must also work with your sales colleagues to ensure the customers have all the master data for the new items, including the UPCs, well in advance so they are ready to flip the switch to the new products.
 

Step 3: Keep everyone in the loop

Arguably, the final step is the most important for success in minimizing waste and keeping your customers happy. Organize a quick standup meeting a few days a week including you as the supply planner, the demand planner, and your sales and marketing counterparts.  

In this meeting, you will review the status of the inventory rundowns. This allows you to manage exceptions. Flag any items running down early and work with sales so they can notify the customer with plenty of time if an early transition to the new item is happening.  

This huddle also becomes an opportunity to problem-solve with sales if any item has excess inventory and proactively find a customer opportunity for that inventory. Anaplan enhances this process with exception-based reporting and real-time scenario modeling to make informed business decisions as a cross-functional team. 

Product transitions no longer need to be a source of dread for supply chain planners. On the contrary, leveraging collaborative planning and Anaplan’s AI-driven scenario modeling, supply chain becomes the hero. You too can save the day and drop $1M to your bottom line.