Your Inventory Opinions and Metrics
“For a better financial return: turn your inventory and receivables more effectively.” – Random MBA alumni
Right! So, most distributors do measure and manage:
- For some target Inventory Turn. But, if you do master-stocking, what are the true costs of replenishing too-many, small-dollar-picks for the same SKUs to each branch? (You have them! See my webinar #4 for more.)
- Reducing (and preventing?): “Excess-Inventory Investment”. The sum of all inventory investments (ranked) above every SKU’s “theoretical maximum” (which is equal to: the SKU’s re-order-point + re-order quantity).
- Reducing: (ranked) Dead-Stock SKU investments
- Fill-Rates? Do you include (or not) the workarounds for local stock outs with: substitutions; back/orders; and/or, split-shipments from other locations? BTW, what are the extra costs for those workarounds?
A Misleading, Target, Fill-Rate Study
A study in the mid-‘80’s graphically concluded that for a durable-goods distributor an optimum fill-rate target was 92%. Inventory investment had to double to get the fill-rates to 95%: a bad carrying-cost trade-off. The case went viral and became (distribution-trade-association, financial-survey) wisdom. But!
- Why would you want to boost the fill-rates for all SKUs equally? Dead-stock too?
- With line-item, profitability analytics, you could boost fill-rates on only the top few percent of your most net-profitable SKUs for great results. (Case recipe here).
- You could tune fill-rates higher for just – the one-stop-shop SKU array sold to – a most, net-profitable, target-niche of customers to win on customer retention.
- And, do you know (measurably) if: the increased carrying-costs of more target SKUs is more or less than the reduction in costs for all stock-out workarounds and the diminished service value for customers? (Two orders to a customer with one being a day late isn’t as good as one complete order on time).
- Fill-rates are foundational to “service value”. Great people and perfect service execution are diminished if you don’t have what the customer wants.
- 100% filled orders out of one location boosts: service value for and retention of customers; plus, personnel productivity. Reinvest workaround activity into taking more full orders.
- Smart, best customers that understand total procurement cost and uptime productivity gravitate to the distributor that has the highest, every-day fill rates.
- Get line-item/SKU-pick analytics to maximize overall, fill-rate economics.