Dec 1, 2019
Minimize stock-outs without creating an excess stock crisis
With the technology products and tools available today, the phrase ‘stock outage” should never leave the lips of a warehouse manager. There is simply no reason whatsoever that any supply chain business should find itself in a stock-out position. We live in a world where instant satisfaction and gratification is expected. A world where customers want what they want NOW. There is very seldom buyer loyalty and customers would rather move to the next supplier if their ‘preferred’ supplier cannot fill their need.
Many companies think the easy way out, to avoid a stock-out is to order in extras of everything. This way, you won’t get caught with an outage. While this may be true, you need to weigh up the pros and cons. Just how much is that excess stock denting your profit margins.
Take a look at all the excess stock you have on your shelves – how much capital is tied up there? Now think about all the additional costs that are tied to that excess.
- The items cost price from the supplier
- Transportation costs to get the inventory to your warehouse
- The cost of warehouse space to store your inventory, including rent, utilities, property taxes, and insurance
- Safety equipment costs, such as fire suppression equipment
- Warehouse equipment costs, such as conveyor belts, trolleys, forklifts, and pallet jacks
- Warehouse labor and security costs
- The cost of loss via obsolescence
- The cost of loss via deterioration, expiration, and breakage
- The cost of a lost opportunity in having your cash tied up in unsold inventory
This sums up why keeping excess stock to minimize stock-outs is not the brightest idea. Excess inventory kills your cash flow and prevents business growth.
Here are some practical ways to lessen your stock-outs that don’t include bulking up your orders:
- Build better relationships and communication with your customers.
- Formulate a stock-out procedure: a) Determine if there is a stock-out in the first place. Your data may not be accurate.b) Communicate with your client and see if they are prepared to wait.c) If waiting is not an option, consider your best and most cost-effective way to resolve the stock out:
- Source from another branch
- Expedite an existing order
- Order from an alternate supplier (or even a competitor)
Figure out why the stock- out occurred in the first place and look at putting in processes to ensure it doesn’t happen again. This may include the implementation of systems and setting up procedures and policies to minimize future occurrences. If you are trying to run your inventory order calculations and forecasts without the use of an Inventory Management solution, you are doing your company a massive disservice.
The money you currently have that is tied up in excess stock could be used to implement proper inventory management systems. You are bound to see an ROI almost immediately and gain the respect and trust of your stakeholders.