It is amazing how many organizations are filled with reactive buyers.  They spend their days going from crisis to crisis.  Often these “emergencies” involve issuing or expediting a purchase order for a product that should have been on the shelf and available for immediate use or delivery.  It is unfortunate that crisis management is often ingrained into the culture of an organization.  Yes, the issues usually are solved, but every crisis costs your organization additional expenses, wastes a lot of time and may result in a less than satisfied customer.  Wouldn’t it be better to establish policies and procedures to prevent problems from occurring in the first place?

Outstanding buyers do not continually fight fires.  They prevent them from occurring.  How?  By planning, analysis and consistent execution.  In the next several newsletters, we will explore “best practices” employed by successful buyers.  We will present them in a logical fashion, so that when you have implemented all of them, you will have a world class replenishment organization.

Step 1: develop a list of the products you will stock in each of your warehouses, branches, stores or other locations.

Remember that the goal of effective inventory management is to meet or exceed customers’ expectations of product availability with the amount of each item that will maximize your profitability or minimize your total inventory investment.  What do your customers expect you to have in stock?  Your salespeople might say “our customers expect us to have everything in stock”.  A better question might be, “could a customer get this product “off the shelf” from a competitor?”  If the answer is “yes”, you probably should consider stocking the product.  However, just duplicating your competitors’ inventory is not enough.  After all, they might be stocking unprofitable items.  If the answer is “no”, you probably should question if the item sets you apart in the market, is profitable, or leads to other profitable sales.

With the products that remain on your potential stock list, focus on items that that have had sales, and/or have been used in an assembly in three or fewer of the past 12 months.  Ask:

  • Are the customers buying each of these items generating profits?
  • Is it necessary to stock the item to support the sale of other profitable items?
  • Could you sell a more popular item in place of this slow-moving product? This is especially true if you are carrying several brands of the same item.
  • Can you stock a product in certain locations and have other warehouses draw from this stock as needed?

Once you have developed the approved stock list make it available to all personnel.  These are the products your customers and salespeople should expect to be in inventory.  If an item is not on a location’s approved stock list, it is a non-stock product.  Non-stock products should not be inventory.  Only enough of these items should be ordered to fill existing customer orders.

Why not get started on the first step to success?  Next month we will examine the next step:  Effectively adding new products to your approved stock list.