So you think you have enough on the shelf? How do you know? What information are you using to plan your inventory? What happens when sales increase? How will you react to fluctuations in demand? How do you know when to order more?
If you couldn’t answer any of the above questions, read on. If you answered them all with ease, you really need to read on because it probably isn’t as easy as you think. Or maybe you are an inventory genius (if so we are hiring!)
Managing inventory is a mix of art and science. Understanding material flow is key to ensuring that your products are available when your clients need them. The alternative is typically a lost sale…not good.
To manage inventory well, you need to quantify the below:
- Inventory movement by day/week/month (Demand)
- Variation in inventory movement by day/week/month (DEV)
- Lead time for replenishment (FGLT)
- Availability and lead time for components (RMLT)
- Minimum run quantity to maintain costing (RQ)
- Order multiples (OX)
Once your quantify the above information, you can calculate reorder points and reorder quantities for every product. Think of this as a “mini production plan” for your item. The below formula is one example of how to set a reorder point:
(Demand*(FGTL+RMLT))+(3*DEV) = Reorder Point (MIN)
Once your have your calculation, you can plug that into your inventory management system and let it tell you when to reorder. Sounds easy huh? Now go do it for 25,000 skus and keep them all in stock!
SI Fulfillment prides itself on being inventory experts. Contact us to learn more about how we can improve your inventory availability while lowering your costs!
