We provide solutions for:
MonthsSalesCOGSExpensesNet Profit
January$34,000$17,000$10,000$7,000
February$34,000$17,000$10,000$7,000
March$4,000$2,000$10,000-$8,000
April$4,000$2,000$10,000-$8,000
May$4,000$2,000$10,000-$8,000
June$4,000$2,000$10,000-$8,000
Total$84,000$42,000$60,000-$18,000

 

This is a nightmare scenario. Why do these things happen to nice people like Mary? Luckily, Mary has a Fairy Godmother. She told Mary that she will allow Mary to relive the previous 6 months, but would not be able to remember anything that happened. Mary eagerly accepted. Before sending her back, her Fairy Godmother put a note in her hand.

 

Mary woke up, seemingly from a nightmare. She looked down and saw a note. It read:

 

Dear Mary,

 

Here is your second chance to make your business succeed. Remember, you can’t predict

the future, so stop trying.

 

Love, FGM

 

What did this mean? She remembered that she had to make her apron order the next day and was just finishing her projections. After a moment, it hit her. What if her projections were wrong? She heard about computer software packages that could help make sales projections, but heard nothing but bad things about them. This was a big decision, so she decided to talk to her supplier, Bob.

 

Mary told Bob of her anxiety around the projection, and asked him what he thought. Bob was a new convert to Theory of Constraints and told Mary that she was trying to do the impossible - predict her future sales. He also told her that doing 6 month batches of orders was unnecessary because he can turn around orders of up to 2000 aprons in two weeks. He suggested that Mary only order 2 months worth of each apron and he will replenish what she sold. This seemed like a good idea because she was no longer relying on her projection being so accurate. Plus instead of needing $60,000 for inventory, all she needed was $20,000.

 

ApronsQuanity OrderedPricePurchase
Kiss The Cook1,000$20$10
Short Order Cook Also Short Tempered1,000$20$10

 

Like the first time around, the mononucleosis outbreak and TV show sensation happened, leaving the same effect on demand. However, this time, she was ready to react. Bob’s quick turnaround allowed Mary to capitalize on the run on “Short” aprons and not get caught with too many “Kiss” aprons. In fact, she decided not to order any more “Kiss” aprons after February. Let’s see what this did to her results.

 

ApronsSales Per MonthInventory After 6 Months
Kiss The Cook2000
Short Order Cook Also Short Tempered1,5000

 

Instead of being caught by the change in the market, Mary was able to keep in stock what customers wanted. Here’s how her income statement looked.

 

MonthsSalesCOGSExpensesNet Profit
January$24,000$12,000$10,000$2,000
February$24,000$12,000$10,000$2,000
March$34,000$17,000$10,000$7,000
April$34,000$17,000$10,000$7,000
May$34,000$17,000$10,000$7,000
June$34,000$17,000$10,000$7,000
Total$184,000$92,000$60,000$32,000

 

Mary, her Fairy Godmother and Bob were able to change an $18,000 loss into a $32,000 profit! She lived happily ever after.

 

So what did we learn from Mary?

 

  1. You cannot predict the future.
  2. The more you depend on your projections, the more you put yourself at risk.
  3. Unless you are Mary, you don’t have a fairy godmother to fix your mistakes.
  4. Instead of trying to predict the future, react quickly to what the market is telling you.
  5. You make a lot more money supplying what customers actually want instead of pushing stuff they don’t want.

 

Want to solve your retailing problem? Isn't It Obvious? is a great way to learn.