Thursday, August 21, 2008

Out-of-stock reports

Most computer systems provide buyers with out-of-stock reports. These are listings of stocked products with no available inventory. Because the stock-out sales orders cannot be filled, salespeople cannot provide the service their customers expect. Buyers scramble to obtain inventory to prevent the "crisis" of the out-of-stock situation from becoming the "catastrophe" of losing those valuable customers.

Out-of-stock reports are, in fact, "gotcha" reports: They inform a buyer of a problem that already exists. Wouldn't it be better if a computer system warned a buyer of an impending crisis? That is the goal of an "early warning system."

It is unbelievable that the report writers available in almost every system have the ability to create "early warning" stock-out reports, but few organizations utilize them. Check with your IT department or software company to see if the following reports or inquiries can be created for your top-selling "A"-ranked items as well as for other products that are crucial to maintaining a high level of customer service:

The available quantity (on-hand – current committed) is below the safety stock level. Safety stock is "insurance" inventory designed to fill unusual customer demand during the lead time or to compensate for delays in receiving replenishment shipments. Buyers should be informed if reserve inventory is being used to fill orders so they can expedite existing incoming shipments or obtain the product from an alternate source. At the very least, if a stock-out does occur, the buyers will not be caught off guard; they will have information in hand as to when the out-of-stock product will be available.

The actual usage by the 7th day of the current month is greater than 50% of the forecast demand for the month. Often, a buyer will be unaware of a surge in sales of a particular product until it is out of stock. If buyers know that sales of a product have suddenly "taken off," they can bring more of the product into inventory before a stock-out occurs.

The actual usage by the 14th day of the current month is greater than 75% of the forecast demand for the month. This is another check to identify products that suddenly have an unexpected dramatic increase in sales or usage activity.

The actual lead time for the just-received stock receipt is more than 50% over the anticipated lead time. The buyers can contact the vendors to determine if the delivery of the latest stock receipt is reflective of future lead times for the item. If so, the buyers can issue replenishment orders for the item earlier than they have done in the past to avoid a future stock-out.

The available quantity of the item at the time of stock receipt is less than an "x"-day supply. You didn't quite run out of the product during this replenishment cycle, but what is the possibility of a future stock-out? Does the forecast, lead time, safety stock quantity, or some other replenishment parameter for the item need to be adjusted?

Restricting the early warning system to fast-moving items and products that are critical to your corporate image will ensure that your buyers aren't buried in data. They won't receive a multitude of alerts, but every one they do get will require their attention. When we propose early warning reporting to our customers, their buyers, inventory planners, and purchasing agents often ask, "Why haven't we had this type of notification all along?" Some buyers prefer alerts in a daily end-of-day report, others as an inquiry, and still others as an email as soon as the situation is identified. The format doesn't matter as much as getting the information. Tell your software people that you want to immediately implement this critical reporting. Countries need an early warning system to prevent attack from foreign powers; you need one to protect something that is crucial to the survival and success of your firm: your customer service!!!

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