Inventory Management Solution

Archive for tag ‘Customer Service’

Inventory optimization = better service and more sales (part 1)

Tuesday 15 June 2010

When maintaining an inventory, the first goal of any company is to service its clients adequately through sufficient stocking of its inventory.  An ideal scenario would consist of clients willing to wait it out to meet their needs and companies could thus operate with a zero stock inventory.

However, the reality is that companies function on a tightrope and expect their suppliers to fulfill their stock requirements faster than the supplier itself can from its own sources.  Customer satisfaction becomes the main goal in maintaining inventories.

This observation brings to mind that it is essential to be fully aware of customer service issues if an optimal inventory is to be maintained.  One of the most commonly used methods to evaluate customer service consists of drawing up the ratio of customer orders delivered on time versus the total quantity required by the client in relation to the number of lines on all its orders.

It is surprising to learn that most companies have difficulty in establishing this guideline.  Many computer systems, including some reputable ERPs, are not helpful in this regard.  Also, a number of administrators have not understood the importance of this measure that greatly accounts for their customers’ satisfaction.  Another challenge for administrations is the recordkeeping of their lost sales.  The client that checks stock availability but does not place a backorder request is as important as the customer that accepts a late delivery.

A certain discipline is required to maintain records of lost sales especially when clients have Internet access to stock availability.  Stock levels are checked online but no orders are placed.  Some companies have developed ways of assessing these stock inquiries and classify them as lost sales.  This procedure is ideal for establishing service levels.

When a company’s service level is unknown and no tools are in place to assess it, it can resort to a simple procedure for evaluation purposes.  First, a snapshot of the inventory in hand is necessary.  Afterwards, for the items that have no stock when the snapshot was taken (excluding seasonal items, obsolete or no stock), a compilation of the number of requests for these no-stock items during the previous year is performed (note that it is the number of requests and not the total quantity requested).  We establish the proportion between the number of requests for no-stock items in relation to the snapshot versus the total quantity of requests during the year and we obtain the estimated service rate.

One could even go further by measuring the level of service according to the ABC classification of the items or by family of items.

Why give priority to inventory management?

Monday 3 May 2010

Discipline must be an essential component of our daily lives if we are to succeed professionnally and attain our goals.  This rule also applies to inventory management.

Concepts such as classification of parts, grouping of parts and the criticality of every part must be implemented in every company.  Unfortunately, these notions of inventory management are not yet installed in our management practices.

However, is Customer Service part of your priorities?

Is business productivity part of your management practices?

Do you buy and sell only when the cost price is at its lowest?

Do you want to increase your profits?

You wonder what these objectives might have in common with your priorities?

Let me share with you the experience of a production company that suffered from constant delays and bad service at the beginning of every fall session.  The staff could no longer suffice  due to the increased demand at this particular time of the year.  Their rolling stock was garage-bound because of broken parts.

It is normal for equipment to be in repair.  For it to remain there, no.  After taking note of the problem, the administration asked itself why there was always a shortage of parts in the repair shop. As a solution, they decided to increase their inventory to eliminate stock disruptions.  Although their stock levels gradually built up, the situation did not improve.  Worse, they had an accumulation of inventory surplus notwithstanding parts that had become obsolete. After various observations and analyses of their inventory, it was decided to proceed otherwise by classifying their parts into specific groupings.

We must all have a surplus of critical parts in inventory that are available at all times to ensure an adequate customer service.  This is the direction the company took.  Each part is now sorted into a   category that belongs to a specific group along with its level of criticality. Thus, the problem was resolved and all their rolling stock was on the road when required.  As a result, their level of service increased by more than 10%, complaints were significantly reduced and their customer service was built up.  Therefore, are you disciplined?