The most important element of effective inventory management is to meet or exceed your customers’ expectations of product availability. To achieve this goal, you must depend on your vendors’ ability to reliably replenish your inventory. But your vendors aren’t always reliable. Occasionally stock receipts are late or the material that arrives is not what you ordered. When this occurs do your customers say, “We understand….it’s OK that you don’t have what we need”? Not likely. In all probability, when you explain that you have an unreliable vendor you customer will respond, “So do we……and you are that supplier!”
You cannot prevent every replenishment problem. But you can implement some procedures that will help reduce the possibility of the products your customers look for most often.
Identify Your Critical Items – Despite what your salespeople may believe, your customers probably do not expect you to have unlimited stock of every product on-hand and available for immediate delivery. But there are some products that you are embarrassed not to have in inventory. My mentor, Alan “Buddy” Silver referred to these as “painful backorder” items. A stockout of one of these products usually results in a headache. Many critical or painful backorder items are inexpensive fast-moving products. It doesn’t cost a lot of money to increase the safety stock (i.e., your reserve inventory) for these items to help ensure that you will have an adequate supply, even if there is a delay in receiving a replenishment shipment.
Share Your Forecasts with Your Supplier – A forecast is a prediction of the future sales or use of a product. Like any prediction it is a guess, rarely 100% accurate. But if you can help your vendors more accurately forecast future demand of your critical items, there is a much better chance that they will be able to reliably supply these products. DRP (distribution requirements planning) is the process of creating forecasts for each of the upcoming 12 months during your monthly forecasting process. Make sure your ERP or forecasting system has this capability. Sharing these forecasts with your vendors can help ensure that they have adequate stock available when you need it.
Identify Problems Vendors – “Best Practice” organizations measure their customer service level. That is, the percentage of line items for stocked items listed on customer orders or requisitions that can be completely filled, when required in one shipment. Best practice is also to monitor the vendor service level for your key suppliers. That is those vendors who provide you with your critical items. Review items with a lower than acceptable service level with your vendor’s representatives. What must be done for their service level to increase to meet your goals?
Identify Alternate Sources of Supply – Many companies feel that they must be loyal to a single source of supply for many stocked products. But what happens if this vendor experiences a problem that prevents them from temporarily or permanently supplying their products? It is very dangerous to be dependent on a single vendor, especially for your critical products. Buyers should identify alternate sources of supply where they can find material when their primary vendor can’t deliver their products in a timely manner.
Most organizations think of terms of redundancy in facilities, computer equipment and power when setting up contingency plans. They want to be prepared if they are affected by a storm, fire or other natural disaster. But, contingency plans for obtaining replenishment stock is just as important. After all, a functioning warehouse is only an asset if it allows for the timely delivery of inventory required by customers.