Annual Inventory Program Case Study–Guaranteed Trade Credits
Suntan lotion only lasts so long, then needs to be destroyed. Consumption is very much sun related (weather) and every year there is chronic industry surplus.
Sherwood bought Banana Boat Sun tan products with enough shelf life to resell. Sherwood issued sufficient trade credits to cover the anticipated annual surplus inventory and squared-up the with Banana Boat at the end of the year so that the trade credit matched the delivered amounts every year, for 10 years.
Sherwood guaranteed the credits could be used for advertising based on captured metrics, historic rates and agreed upon adjustments for market increases or decreases. Banana Boat avoided any losses associated with their excess inventory.