Master Items can help organizations reduce item confusion and improve inventory replenishment when standard ERP functionality does not reflect the way their business operates. There are common characteristics to most ERP (i.e., Enterprise Resource Planning) systems. These systems assume that all businesses have the same requirements and need to process data in a similar fashion. Over the past 30 years, we have found that this is often not true. Each of the over 2,500 organizations we have dealt with is unique.
When dealing with an ERP system, organizations are often forced to either:
- Change the way they operate to adjust to the capabilities of their new system.
- Invest in expensive modifications to their system that must be re-implemented whenever a new release of the software is introduced.
We have found a better way that provides the flexibility that most companies require at a minimal cost. Our method supplements an ERP with spreadsheets that will perform necessary additional processing.
This series of articles describes some of the solutions that our clients have found to be most useful. This month, we explore the need to establish and maintain “Master Items” to properly replenish inventory. Master Items have the potential to end the “item confusion” suffered by many organizations.
Why Inventory Item Confusion Occurs
Most systems record sales/usage history and forecast future demand for each location/item combination. Replenishment parameters (i.e., Minimum and Maximum Stock Levels, Reorder Points and Reorder Quantities, etc.) are automatically calculated for each warehouse, store, or other location based on this usage history.
This may seem logical, but this basic design may lead to several problems, including:
One Product Is Stocked in Several Different Purchase Quantities
For example, you might sell individual cans of a product and cases of 12 cans of the same item. As the two container sizes have different pricing, they must be considered as separate SKUs (i.e., stockkeeping units).
However, because the single-can inventory is replenished from the stock of cases, the total usage of both SKUs must be considered to accurately calculate replenishment parameters for the case item.
You Carry Several Brands of the Same Product
These products can easily be substituted for one another. While customers may prefer a specific brand, they may be willing to “settle” for an alternative, especially if they can buy it at a lower price.
A buyer probably wants to know, before buying more of a particular item, if there is surplus inventory of a related product.
The Burden Item Confusion Places on Buyers
These issues, and others, create headaches for buyers. They must:
- Keep a log of situations where they need to consider one or more other items when replenishing the stock of a particular product in a location.
- Document, or remember, how to consider the usage, on-hand quantity, on-replenishment order quantity, or other information of other products when deciding how much of a product to buy.
- Manually manipulate the data, or create a new analysis, every time they review the vendor line containing these troublesome items.
How Master Items Improve Inventory Replenishment
We have solved these problems (and others) by using simple spreadsheets to create and maintain Master Items. The attributes of a Master Item will vary to meet the exact needs of each client, but common capabilities include:
- Adding historic usage quantities of designated related items to the values for the product being ordered.
- Listing the on-hand, available, and on-replenishment order quantities for designated related items to the values for the product being ordered.
These summarized values are used in following replenishment rules established by the buyer in producing suggested replenishment reports. This eliminates the need to manually “recreate the wheel” every time the vendor line is ordered.
Supplementing ERP Systems for an Organization’s Unique Needs
An effective ERP system is comprised of the vendor’s software, supplemented by customized tools, that meets an organization’s specific needs.
Master Item implementation is just one of the customized tools we have implemented for clients. It saves time and produces consistent results that align with the specific company’s goals.
A system is only successful if it reliably performs repetitive tasks that always follow your company’s unique set of “rules.” These systems allow your buyers, and other key personnel, to “manage by exception.”
That is, to use their market knowledge to deal with unusual activity—spikes in demand, unusually long lead times, etc.—that requires research and the expertise gained by experience.
Let us know if you would like to discuss how EIM can help you develop the tools you need to achieve success.
