‘It must be good, it’s sold out”, said a prospective customer who arrived late at our stall at the Legaspi Sunday Market.  All our products were sold out and he wanted to buy Hainanese Chicken.  He actually wanted to order for his upcoming birthday.  He was like many of our customers, a ‘foodie’ i.e. a person who has a great love for quality food.  While price is important, taste is paramount.

This prospective customer had hoped to buy one serving of our Hainanese Chicken and then decide whether or not to order for his birthday celebration.  He said the 1st time he tasted Hainanese Chicken was in Hainan.  He also said he was often disappointed with the Hainanese Chicken in Manila.  So I said ‘I hope you like our chicken’.  To which he replied ‘It must be good, it’s sold out”.

This got me thinking about the supply chain, about fulfilling consumer demand and about building a customer base.

One of the biggest problems we had at Avon was fulfilling consumer demand.  We got to the point where we had indoctrinated our sales force and our customers to our lingo.  At Avon we used the acronym ‘OS’ - for out of stock.  I knew we had a widespread problem when a new masahista learned I worked at Avon and immediately said ‘ah Avon – laging OS”.

Avon had a wide and complicated product line, multiple outlets and hundreds of thousands of sales force.  You don’t sell a lipstick in one shade, you offer at least 10 shades. The trick is making sure the lipstick in the hands of our customer is the right shade, at the right time, literally from Aparri to Jolo, without having substantial excess.

When we opened up our stall at the Sunday Market, we deliberately kept the supply chain simple and the product offering small.  But we were still short.  We have unfulfilled customer demand, a source of frustration for some customers.  But as in the case of the gentleman ‘foodie’, there are those who believe ‘if it’s sold out, it must be good’.  We also overestimated and had chicken coming out of our ears at the end of the day, as was the case during the last Pacquaio fight.  Our sales were knocked out by Pacquiao.

So which is better, to short and lose sales or to overstock and lose profit?

To my mind, it depends on the stage of development of your business, the nature of your product and on your business objectives.

Let’s tackle ‘Stage of development’.  If your business is a start up, capitalization is generally tight and cash flowa key driver in your business.  In my days as a new GM of a start up company, suppliers were told, ‘sorry walang check signatory’ even if I was in the office.  Inventory ties up cash and must be turned over quickly.  At this stage, it’s better to short than to get stuck with inventory.  As your cash flow improves, you can invest in more inventory.

Nature of your product line.  If your product has a long shelf life, of course it’s ok to invest in inventory.  If your product has a short shelf life, think twice.  Our neighbouring stall at the market sells wine and beer.  The Sunday of the Pacquiao fight, the owner complained to me that her sales were so low.  I looked at her and said ‘at least you can keep your inventory and sell it next week!”  We ate chicken fried rice, chicken salad, chicken sandwiches, chicken pasta all through the week!

Business Objectives.  If your business objectives include gaining consumer trial, ordefending market share,or  gaining market share  --  investment in inventory is mandatory.  Notice the use of the word ‘investment’.  Because it is an investment, it is a competitive tool, a business hot button. Depending on your business objectives, you choose to invest in certain SKUs, in certain locations or both.

Lastly, would you consider deliberately shorting a product to create demand?  Perhaps.  When you short, customers sometimes shift to whatever is available.  But done too often, customers walk away.  Perhaps, if the competition is not aggressive.But remember, many of our local business giants quickly lost market share when aggressive competitors entered their business arena.  Dealers and customers were fed up with ‘poor customer service’.  That is perhaps the most important – customer service and your ability to recover your customer’s good will in spite of shortfalls.
MaluDyBuncio is the Chief Business Development Strategist of Mansmith and Fielders, Inc., (www.mansmith.net). She was the former country head of Avon Philippines and Avon Indonesia. For inquiries on our programs, please call (63-2) 584-5858/412-0034, text 0918-81-168-88 or email info@mansmith.net.