If you seem to continually swing between an excess inventory or stock-out situations, you are probably facing challenges with placing optimal orders.
Every order that you place ties up your working capital, so it is in your best interest to ensure that the orders you place are correct. If you order too much inventory, it will not be turned around in a reasonable time frame, and this tied up cash is giving you very poor or no return each year. If you order too little inventory, stock-outs occur, resulting in unhappy customers who end up at your competitors. The orders you place are critical for achieving optimal stock levels, customer service, and gross profit.
By answering the following questions, you will better understand where you are and where you need to be for optimal order placements.
Before you place your orders:
- Do you consider an item classification status?
- How do you factor in the sales forecast?
- Are you using the latest stock on hand figures, and how accurate is it?
- Are you considering all existing open purchase orders already placed on your supplier when ordering?
- Are you factoring in the specific item’s risk profile, the target fill rate, and the safety stock levels?
- Do you involve key people in the organization to give their valued input before determining your final order?
- Are you specifying the amount to be ordered only to get a good price?
- Do you know whether the order quantity will take you one step closer to achieving your model inventory level?
- Is the total value of orders being placed within the agreed cash flow budget for the month?
Now that you understand where your gaps are in order replenishment, how should you be placing these orders?
There will always be times when customers’ buying patterns will change slightly or when your suppliers let you down with deliveries, but if you have this type of process in place, it will help your efforts to create ideal orders and minimize your risk or excess or stock-outs.
A sound inventory management system, like NETSTOCK, performs many of these steps and allows you to review suggested orders that the system provides to ensure that they are correct before committing valuable working capital.
If you find placing replenishment orders to be one of your inventory challenges, attend our free webinar in partnership with NETSTOCK on the 24th of November 2020 and learn how to Optimise Inventory Management and Improve Planning Efficiency.