SAP Solutions: Is Your Marketing Out of Sync with Your Inventory Management?
The effectiveness of marketing campaigns is traditionally measured by the revenue made in excess of advertising costs. This is called the return on advertising spend (ROAS) metric. On the surface, this seems to be the right metric for gauging marketing success. It’s hard to imagine how getting the biggest return on money spent could harm a business.
However, the metric doesn’t take into account the long term effects that marketing choices have on inventory management. Return on advertising spend favours committing most of your money on popular fast selling items. This adversely affects your inventory and can waste money for the following reasons:
It Produces Unnecessary Stockouts
When a supply chain problem interrupts your inbound flow of goods, the possibility of a stockout looms when current inventory levels are low. Money spent on advertising the at-risk goods only brings about the stockout sooner. The net result of this spend is no additional sales beyond those that would have occurred with none or reduced advertising. In addition, the early stockout increases the extent of customer dissatisfaction and loss of valuable repeat customers.
By using the right ERP system, marketing can use inventory and supply chain information feedback to reduce advertising spend on the affected goods in order to avert or delay a stockout by temporarily reducing demand. The net result is approximately the same number of sales, less money wasted on advertising, and fewer dissatisfied customers.
It Creates More Dead or Slow Moving Stock
For seasonal goods, it’s desirable to sell off everything by the season’s end without stockouts or leftover inventory. Putting most of your advertising money into the fast moving goods (as dictated by the ROAS metric), leaves too little for your slow moving goods, which are at risk of becoming dead stock at the end of the selling season.
Ideally, you want to split up advertising spend in the right proportions to empty your shelves of all goods at the end of the season. This means spending less advertising money on the high turnover goods and more on the slow moving items. This will result in fewer reorders of fast moving items from your suppliers, but will use up all or most of your slow moving goods.
The costs of unsold inventory gathering dust may outweigh the extra revenue generated by too much focus on your fast moving goods. Finding that optimal balance of advertising requires seamless data integration between your marketing and inventory departments. This is best achieved with an ERP system such as SAP Business One. To learn more about our SAP solutions for smaller businesses, contact us today.