Managing By Exception – Part #4
Prioritize Items in your Unusual Usage Report
by Jon Schreibfeder
A few months back, we discussed the importance of reviewing unusual usage at the end of each month or week. That is, examining situations where your forecast of future demand was substantially different from the quantity actually sold or used. Many of you contacted us and asked about making the best use of the time you have available to work on this important task.
This month, we will discuss how to focus on the situations that most need your attention in your unusual usage report:
- Sort items to be reviewed by product rank (based on “hits”). A “hit” is a customer request for a product, regardless of the quantity ordered. Whether someone asks for one piece, 10 pieces or 100 pieces of a product it is still one hit. You want to focus first on products that are requested most often. Though “A” ranked products are normally responsible for 80% of hits, they typically represent no more than 10% – 13% of your normal stocked items.
- Define characteristics of items you want to review. How much greater (or less) than the forecast does usage have to be in order to be listed on the unusual usage report or inquiry. While a high percentage of 100% and a low percentage of 50% work well for products frequently requested, they probably don’t accurately reflect possible unusual activity for low usage items. Consider a product whose forecast for the inventory period was one piece. If we applied the high percentage of 100% and the low percentage of 50%, this item would appear on the unusual report or inquiry if actual usage was greater than two pieces, or less than one piece. The result would be a cluttered report listing far too many products than a buyer could review in a reasonable length of time.
Given the above argument, here are some suggested parameters for defining high and low activity by rank:
|Rank||High %||Low %|
|A – Top 80% of Hits||100%||50%|
|B – Next 15% of Hits||200%||25%|
|C – Next 4% of Hits||300%||0%|
|D – Last 1% of Hits||400%||0%|
|X – No Hits in Past 12 Months||Any Sale Quantity||Not Applicable|
- 3- Within each rank, products whose usage is greater than the high percentage limit are listed in descending order based on the percentage difference between the forecast demand and usage. In other words, the product whose usage exceeded demand by the highest percentage will be listed first in your unusual usage report.
- 4- Also, within each rank, products whose usage is less than the low percentage limit are listed in ascending order based on the percentage difference between the forecast demand and usage. In other words, the product whose usage fell short of anticipated demand by the largest percentage will be listed first in your report.
Organizing your unusual usage review in this way will assure that you review the most important situations first. And if you don’t have time to look at every single instance of unusual usage, at least you’ve addressed those situations that will have the greatest effect on customer service.