One of the most important tasks of the purchasing department is to reduce costs by optimizing stocks. A not so easy task, because it must be constantly juggled and avoid both overstock and stock shortages. A fine line and balance quite difficult to maintain without a process of continuous tracking and optimization.
Correct sizing of stocks
The effects of wrong sizing lead to:
- Out-of-stock, which translates into delayed delivery or production, breach of contractually agreed delivery times and subsequent financial losses.
- Overstock means money tied up in inventory
They are responsible for this dimensioning, from the planning, purchasing and logistics department, to the management, responsible for the allocation of money. Dimensioning the quantitative-value stock levels is done by calculating the average value of the stocks over the last 6 months, compared to the average sales of the same period, taking into account any expected increases plus a percentage representing the safety stock.
If the average value of stocks is much higher than the average sales, it means that there is too much money locked up, and if the value is lower, it means that the levels need to be adjusted, to avoid out-of-stock situations.
The benefits of right sizing
Proper inventory sizing helps you increase efficiency by minimizing interruptions in production or delivery of orders to customers and thereby financial losses. The effects of overstocking or stockouts are not just immediate, but there is a real chain of effects that propagates.
Lack of stock produces effects in operational flows. In manufacturing, for example, the costs of any delay are enormous: both machines and production equipment, as well as workers, sit. And the effort to put into production another order instead of the one for which the raw material is missing, also means an additional cost. The result is seen in the final cost of the product, which will increase, thus reducing the profit rate. Not to mention additional special shipping costs and penalties from customers for any hour or day of delay.
Delivery interruptions and delays can be anticipated and avoided using properly implemented and used software solutions. Automating purchasing processes, accurate inventory tracking through the use of barcodes, and automating the real-time inventory process are the elements that lead to better order planning and execution.
Implementing a resource management software helps you calculate and plan your inventory much more efficiently.
Distribution companies that have implemented BITSoftware's complete distribution solution have over the years been able to optimize their inventory, costs, simply eliminate human error and improve their uptime and delivery of orders.