Supply Chain Analytics: 3 Reasons Why You Ran out of Inventory
You didn’t consider market factors when you managed your inventory with minimum order quantities (MOQ)
Perhaps you looked up the minimum order quantity formula and set order levels for all of your SKUs or part numbers. You based your calculations on historical order patterns but a few months down the road, you found you ran out of several key parts or SKUs anyway.
How could this happen? Predicting future inventory needs is a mixture of art and science. Certain factors such as product life cycle, trends and marketing campaigns can substantially change your inventory needs. Yes, that last email campaign did well, but if you didn’t order a little bit more inventory before you sent it out, your sales could outpace the speed at which you can replace that inventory based on normal MOQ calculations.
You didn’t account for variability in your supplier delivery
If you used your historical order data to predict what to order when, you may have based that on the promised lead times of your suppliers. Few companies ever take the time to examine whether these promised lead times match actual delivery times.
As an example, suppose one of your suppliers has a contract with you promising to deliver product to your shipping dock or warehouse in two weeks. You decide to pull data from your system to record the dates on which you placed orders with this supplier and the dates on which you actually received the product.
Perhaps you find that 70% of the time, the product is delivered to you in two weeks, but 30% of the time, it is taking more than two weeks. For that 30% of the time, you may “stock out” of products and leave your customers waiting. In modern day, customers aren’t unwilling to wait very long and many of these orders will be cancelled. Cancelled orders equate to lost sales. Worse yet, those customers now deem you to be unreliable and are less likely to order from you in the future.
You didn’t look at any data at all!
Perhaps you began as a small business, offering a few products to the market. You grew and reached new levels of sales. You added more products to your portfolio, increasing the complexity of your business in terms of inventory management, supplier management and customer service. If you’ve reached this point without analyzing your ordering patterns and never having a “stock out” issue, you’re incredibly lucky. Before you expand much further, it’s best to gain some visibility into your product ordering, supplier performance and inventory levels.
Tracey Smith is an internationally recognized analytics expert, speaker and author. Her hands-on consulting approach has helped organizations learn how to use data analytics to impact the bottom line. Tracey’s career spans the areas of engineering, supply chain and human resources. She is CPSM certified through the ISM. If you would like to learn more, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. You can check out her books on her Amazon Author Page or on Kobo.