A Questionnaire for
New Inventory Items
by Jon Schreibfeder
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 (see the Analysis section below)
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.
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.
©2001, Effective Inventory Management, Inc. All rights
reserved. This article cannot be reprinted or reproduced, in whole or in part, without the
expressed written permission of Effective Inventory Management, Inc.
Next Article: A Key to Accurate Demand
Forecasting
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Effective Inventory Management, Inc.
215 South Denton Tap Road, Suite 230
Coppell, TX 75019
(972) 304-3325
Fax: (972) 393-1310
Email: info@effectiveinventory.com