Inventory Management Solution

Archive for tag ‘service level’

Inventory optimization and customer service (part 2)

Monday 21 June 2010

Among key indicators of a company’s dashboard, the higher management must determine its customer service objectives by class and/or by family of products.  These service objectives are part and parcel of the strategic data that sets your business apart.

Service wise, these objectives will take into account customer needs and the market positioning desired by the company in terms of service as well as its capacity to invest in its inventory to reach its goals.

It must be noted that the higher the service objectives are, the more the inventory level must be increased to guarantee the level of service.  The proper software can assist the company in linking its service objectives with the inventory required.

A trustworthy computer system dealing in inventory management should compute efficiently the parameters of inventory management in relation to the service objectives.  A good system will establish the level of buffer stock required in relation to the optimal service desired by the company.  The buffer stock should normally also take into account delivery schedules as well as the forecast of the demand or demand variability.

To achieve a sustainable level of service, it is imperative to establish variables such as the minimums and maximums on hand that will not only be dynamic but also correlate with the desired service goals.

Interestingly, there are companies today that offer services that provide dynamic calculations of the parameters of inventory management that consist in updating the Min Max according to the service objectives sought by way of dashboards, via the WEB, through a set of indicators that follow the evolution of inventory management.  The IMAFS system also offers exception reports on a pay-as-you-go basis for inventory management.  It is undeniable that an inventory management system will increase a company’s profitability, thus guaranteeing a return on its investment.

In conclusion, we have a better understanding of how inventory management and optimization of customer service go hand in hand.

Robert Lamarre

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.