Matching stock to demand is critical to profitability – maximising customer service levels while minimising stock investment. This is one of the areas where your IT systems can deliver a big ROI – provided they offer the right functionality and this is properly used.
Use these tips to check you’re optimising your stockholding.
Schedule Buying – Set up a regular daily, weekly and monthly schedule of what stock to review for re-order and a regular schedule for orders on each supplier. Anything out of the ordinary is then easily spotted.
Think in days – Ensure your computer system reports stock levels as days stock, based on the current sales forecast. If you re-order an item weekly, it’s much easier to spot the problem if the system reports 3 days stock rather than 500 cases. When calculating the re-order quantity, relate the number of days stock you are ordering to the lead time and re-order interval. A good computer system should do all this for you!
Think ahead – Base re-order quantities on a demand forecast not sales history or you will always be over or under-stocked. Your system should use an adaptive smoothing algorithm for its demand forecasts, which will allow it to react quickly to sales trends, but not over-react to random fluctuations in demand. Ensure you understand the limitations of the system’s forecasting and leave it to do the maths for you except when you know of circumstances that it can’t handle – a sudden heat wave, or England World Cup match?
Schedule supplier deliveries and monitor lead times – Your aim is to order just enough stock to last until the supplier delivers your next order. To do that, you must know when each delivery is scheduled, and how reliable each supplier is. If a supplier is regularly one day late delivering, you must make him deliver on time, or alternatively, order an extra day’s stock. The best way to handle this is using computerised supplier delivery scheduling with comprehensive supplier performance reporting.
Scan Goods In – Mistakes when booking in stock are often the cause of the biggest stock discrepancies. The solution is to scan barcodes at goods receipt. The most effective system is to use a radio terminal with online real-time access to the system.
Monitor Low Stocks – No matter how well disciplined your re-ordering, or how accurate your stock recording, there will still be situations when unexpected demand results in insufficient stock. The trick is to identify the situation early enough to do something about it. The simplest form of low stock reporting that is useful will allow you to list items with less than a specified number of days stock. However, if you have your re-order schedules in the system, then, based on the demand forecast, the system should be able to calculate which items are likely to run out of stock before the next scheduled supplier delivery.
Rotate stock – As stock is sold, it is important to rotate stock correctly, otherwise you end up with short-dated stock that is unsaleable or has to be sold off at a discount. To rotate stock correctly, you must be able to locate easily the oldest dated pallet. This is achieved most efficiently with a real-time WMS, with fork lift truck drivers updating the system directly with either a truck mounted radio data terminal or with a voice terminal.
Picking accuracy – The replenishment process can only be as good as the data it is using, so improving picking accuracy is an important element of reducing stock discrepancies. The two best methods of improving picking accuracy are barcode scanning or voice directed picking, again with an RF network for real-time communication with the system.
Regular stock checks – While the correct use of technology can help prevent stock inaccuracies, they will never be eliminated, so it is important to retain the discipline of regular stock checks. A sophisticated WMS with real-time stock control, makes this much easier to implement, as perpetual stock-taking can be built in to other tasks such as picking face replenishment. In this way, stock quantities are regularly checked during the course of normal activity, discrepancies are identified earlier and corrective action can be taken.
Monitor over-stocking – You will achieve the best results only with careful performance monitoring. Over-stocking can result from lower than expected demand, from stock inaccuracies, or from incorrect setting of the parameters of the re-order calculation. It is, therefore, important not only to set up regular reporting of over-stocked items, but also to analyse the reasons carefully, and take the appropriate action.