Preparing for a seasonal peak: index and stock plan

A seasonal peak creates two risks for a warehouse. If you do not prepare, the shelves are empty in the best weeks. If you overdo it, after the peak your money is stuck in surplus goods. To reduce this risk, plan the peak by numbers, not by gut feeling. The main tool is the seasonal index: the month's sales ÷ the average monthly sales for the year.

What the index gives you

An index of 1.0 means the month equals the average. An index of 2.0 means sales are twice the average month. An index of 0.7 is a rather quiet month. Calculate the index from at least two or three years and average the years, otherwise one unusual year distorts the result. How to detect seasonality is explained in a separate article; here we look at turning it into a plan.

Example: a school supplies shop

Average monthly sales over two years, in millions of so'm: January 42, February 38, March 40, April 36, May 34, June 32, July 46, August 110, September 100, October 42, November 38, December 42. The total is 600, the average month 600 ÷ 12 = 50.

Indices: August 110 ÷ 50 = 2.20; September 100 ÷ 50 = 2.00; July 0.92; June 0.64; the remaining months from 0.68 to 0.84. All the indices must add up to 12, otherwise there is an error in the calculation.

From index to plan

Suppose next year's sales forecast is 660 million (growth of 10 percent). The base month is 660 ÷ 12 = 55. August is 55 × 2.2 = 121 million and September 55 × 2.0 = 110 million so'm.

Let the cost of goods be 75 percent of sales. August demand at cost is 121 × 0.75 ≈ 91 million, while an ordinary month is 55 × 0.75 ≈ 41 million. So the peak needs roughly 50 million so'm more stock and the same amount of cash. If delivery takes 45 days, the goods needed at the start of August must be ordered in mid-June. Agree a credit line or prepayment terms well before the peak.

Build the plan in four steps:

1. Forecast monthly sales using the index.
2. Convert them to cost and find the stock required.
3. Subtract the lead time and set the order date.
4. Check the cash and the floor space.

Many people forget the last step: peak stock takes noticeably more room than usual, so a temporary area or an extra warehouse may be needed.

The price of surplus and shortage

The forecast can be off by 15 percent: 15 percent of 121 million is 18.15 million so'm of sales.

• If you buy less, those sales are lost. With a 25 percent margin the lost profit is 18.15 × 0.25 ≈ 4.5 million so'm.
• If you buy more, goods worth 18.15 × 0.75 ≈ 13.6 million so'm are left over. Holding them until next year at a 20 percent cost comes to about 2.7 million so'm. Even sold at a 20 percent discount they bring in 18.15 × 0.8 = 14.52 million, which is above cost.

On these assumptions, slightly overbuying this item is cheaper than underbuying. For goods that go out of date quickly or depend on fashion it is the other way round. Work out these two figures for each category yourself.

Moving holidays

Navruz, New Year and 1 September fall on the same dates each year. Ramadan and Eid al-Adha follow the lunar calendar and arrive about 10-11 days earlier each year than the year before. A monthly index cannot catch such demand: the peak splits between two months. Place weekly data relative to the date of the holiday (three weeks before, two weeks before and so on) and calculate the index along that axis.

Conclusion

The seasonal index turns a peak from a vague guess into a calculated plan: it shows in advance how much stock is needed, when to order and how much cash is required. CountLab confirms the opening balance through stock counts and, after the peak, helps to check the remaining stock quickly with discrepancy analysis and a cycle count plan.