Recently, I read an article from the Supply Chain Digest (by Richard Wilhjelm – Compliance networks) “It Really is all about the PO Lifecycle” that clearly outlined how vendor performance is critical to supply chain management. By understanding vendor performance, retailers can not only improve the customer experience, but save big money in the long run.
Because the article prominently discusses safety stock, I asked Eric from NETSTOCK/Sage Inventory Advisor to provide some insight into safety stock, how to manage it and ultimately how to reduce the capital. Here is what he had to say:
By Eric Graf, NETSTOCK
RIchard Wilhjelm’s article on the PO Lifecycle is a helpful look at a key concept for anyone who deals with inventory, and I also recommend you check out the article for more on this topic.
I want to expand on one important point from the article about safety stock. As the article rightly points out, “that’s where the money is.”
For retailers, distributors, and manufacturers, running out of stock while trying to fill orders is an absolute nightmare. As a result, these businesses will purchase and store safety stock – also known as buffer stock – to prevent running out of key items.
There are challenges with calculating your safety stock. Most inventory planners rely on gut feel and a healthy fear of stock-outs, so they tend to add some extra safety stock when they place orders as a “just in case” measure.
The problem? That safety stock is capital that’s tied up in your warehouse. And if you’ve overestimated your safety stock levels, you’ve got an excess stock issue and the resulting costs can be significant. Don’t forget to factor in the expense that comes from holding excess: there’s storage, insurance, counting, moving, spillage, and obsolescence – all of which are on top of the expense of the stock itself.
There’s a better way, and it starts with finding the right safety stock levels to keep orders filled while keeping your inventory overhead low.
If you’ve got inventory, what you most likely need to do is identify the right balance of your stock levels. Not too little, but not too much either. Achieving that balance is easier said than done. The calculations and data syncs required to get this job done require the right tools, and most ERP software provides a very basic look in how to create the ideal amount of safety stock to keep capital moving without risking stock-outs.
Almost all the data you need is probably in your ERP to begin with, and now there are tools on the market that can extract properly-synched data and run it through a series of algorithms and calculations to deliver optimal order recommendations.
The result? A healthy, balanced warehouse that doesn’t run out of stock and isn’t sapping capital reserves by storing it in unnecessary excess. Cash gets freed up, the planner spends less time dealing with emergencies, and fill rates go up.
These are the kinds of best practices that the largest firms have been using for years. Now, with newer tools like the inventory optimization app NETSTOCK, small and medium-sized businesses can implement inventory best practices too. NETSTOCK is an inexpensive cloud app that delivers an easy-to-read dashboard that highlights all the key products that a planner needs to keep their eye on. It provides sales forecasts that include trends and seasonality, as well as item classifications that help prioritize products based on their value and velocity.
You can learn more about NETSTOCK on their website, where you can watch a brief video and see the impressive dashboard for yourself. If you’ve ever struggled with stock-outs, safety stock levels, or excess stock, this is an app you need to see. If you have any questions, or are interested in a demo, please fill out the form below. If you’re a Sage customer and would like to learn more about Sage Inventory Advisor, you can visit their website.