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:

1. 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.)
2. 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).
3. Reducing: (ranked) Dead-Stock SKU investments
4. 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!

1. Why would you want to boost the fill-rates for all SKUs equally? Dead-stock too?
2. 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).
3. 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.
4. 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).

Conclusions:

1. Fill-rates are foundational to “service value”. Great people and perfect service execution are diminished if you don’t have what the customer wants.
2. 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.
3. Smart, best customers that understand total procurement cost and uptime productivity gravitate to the distributor that has the highest, every-day fill rates.
4. Get line-item/SKU-pick analytics to maximize overall, fill-rate economics.