Every distributor deals with seasonality of products, though some industries are harder hit than others. With my experience in the construction supply industry, I've found that seasonal products were some of the most difficult to manage. They may have only represented 20 percent of the entire product offering, but they seemed to provide 80 percent of the headaches during the annual inventory count.

How many of us have experienced the sheer joy of carrying 400 concrete blankets through a summer season? There's not much margin left in those bad boys by October. Water coolers and jobsite heaters are a couple more groups that give us fits in the contractor supply markets.

I don't belittle the importance of these products. We are in the business of meeting the needs of our customers. I only suggest that we learn how to manage these products more effectively.

The above examples were easy targets. I am certain that you could sit down with your organization and come up with 100 other products that fluctuate with the seasons. An important distinction is that seasonal products don't necessarily have to do with weather changes.

What about hunting season? Don't some of us carry products that may cater to the leisure time activities of our customer base?

For those that cater to a more retail clientele, the holiday season is a large consideration for inventory planning and management. Beyond the obvious, I believe there are several hundred items lurking in your inventory that could be considered seasonal. If you don't identify them as such, and manage them accordingly, you'll run the risk of being unable to fulfill customer demand at the beginning of the season—and even worse, wind up sitting on a tremendous surplus at the end of the season.

In order to identify these hidden products, run them through a seasonal item filter. A filter is nothing more than a rule, or set of rules, designed to identify a product. As an example, if more than 80 percent of your sales volume on a particular product occurs in any six-month period, that item is probably seasonal. Be aware that I did not say consecutive six-month period. There are some items that have a split season. One that comes to mind is rain gear. Rain gear generally sells in the Spring and Fall, not during the Summer or Winter. So go ahead and apply the rule to your inventory and search for those seasonal products.

Once you have run your products through the filter and developed your list of targets, spend some time understanding when the season begins and when it ends. This is a critical step in meeting the needs of your customers.

As distributors, we are in the business of maximizing our service levels, while minimizing the inventory we carry. It is important to know when the season starts so that we can have enough inventory to meet the needs of our customers.

Unfortunately, the real mystery is when it is time to shut them down at the end of the season. This is why we tend to wind up with surplus at the end of each season. I worked with a distributor in Denver who had a simple rule, "Stop buying cold weather products on January 1." He had been working in that market for 20 years, and it worked for him. A more accurate way to understand the season is to study the results of your filter.

On a non-seasonal item, I use a six-month average to predict usage. We take the last six months of usage, add them up, and divide by six to predict how many units the customers will buy in the seventh month. This doesn't work too well for seasonal products.

For seasonal items, we need to look at the six months from the previous year. This is referred to as a future rolling average. In order to predict usage for May, we need to review May through October, take an average, and apply the number to our May prediction. Our June predicted usage would be an average of June through November.

Of course, this would work great if our businesses were consistent from year to year, but they aren't. They grow and decline. This is why we need to add one more factor to our calculation: hit the predicted usage with a growth percentage or a decline percentage. If your overall business is up 10 percent over last year, increase your prediction by 10 percent. Conversely, if your business is down by 10 percent, reduce your prediction by 10 percent. You are well on your way to managing those seasonal items.

Running out of product is completely against the nature of a sales-dominated organization. Let me assure you, it is far worse to end the season with a mountain of surplus inventory. We need to remember that the number one reason that wholesale distributors go out of business is not due to a lack of sales. The number one reason that distributors fail is by carrying too much inventory.

Running out of a seasonal item near the end of the season isn't the end of the world. Just go buy some from your competitor at a premium. Take a little hit on the gross margin side. The effect on your net profit will be far less significant than the carrying cost hit you will take by holding on to those products until next season.