How to Reduce Stock-out Frustration
To solve your inventory challenges, you went ahead and purchased an inventory management system. The software vendor demonstrated great capabilities to you and you thought your problems were behind you.
You took the time to add all of your part numbers to the system, your list of suppliers and their contracted lead times. The inventory system went live, your employees were all trained in how to use it, but in the end, you’re still experiencing unexpected stock-outs, displeased customers and frustrated customer service reps. Clearly, your new inventory software doesn’t work, right?
Not necessarily. The inventory system only knows what you tell it. If the information you provide is not representative of the real world, the system will make the right decisions with the wrong data. So, how does data “go wrong” inside your system?
First, it is not unusual for inventory quantities to become slightly inaccurate. Possible reasons for this are parts in your inventory that are found to be defective as your employees try to use them in the manufacturing process. Inventory should be classified with the ABC system and a cycle count plan put in place.
Second, and far more fundamental, are the supplier lead times put into the system. Most companies enter the lead times that are promised in supplier contracts. But have you ever created some simple data visualizations to see if lead times in supplier contracts match the delivery times you’re experiencing? If they don’t, technically your suppliers are not in compliance with their contract with you.
Whether you have an inventory management system or not, you can still track contracted lead times against real delivery times. In reality, you will probably see a range of delivery times for each supplier. Examining the typical ranges that you are experiencing with each supplier, along with some basic statistics (variation), you can set the service level for servicing your own customers.
If you’d like some ideas on simple ways to study your inventory, feel free read the following article as well. 49 Ways to Use Data Analysis to improve your bottom line.
About Tracey Smith
Tracey Smith is the President of Numerical Insights LLC, a boutique analytics firm that helps businesses derive value from data and improve their bottom line. If you would like to learn more about how Numerical Insights LLC, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. To read future posts, you can join Ms. Smith’s network by signing up here.