Ten rules for managing stock and improving availability during times of shortage.

Thu, Aug 12, 2021 10:00 CET

In the past 18 months, businesses have faced unprecedented supply chain challenges. First came COVID-19, then Brexit, closely followed by container shortages and now an ongoing lack of over-priced raw materials.

Each issue has had a negative effect on stock availability, leading to unhappy customers and super-stressed operational teams.

Whilst there is no ‘silver bullet’ solution, this article offers ten ways your business can help deal with stock availability challenges during times of shortage.

Be extra nice to suppliers

With everyone scrambling for stock right now (including your competitors), it’s more important than ever to build and nurture strong relationships with your suppliers.

Help your suppliers to help you! The more information you can give them about your future order requirements the better. You can then have regular, open and honest discussions about the current and future risks to supply.

Start by creating and sharing a monthly order schedule. This is a demand projection, based on your sales/production forecast, that provides a clear picture of what stock you need and by when. Armed with this information, it’s then the responsibility of both parties to agree whether these expectations can be met, and, if not, what can be achieved.

Track risk of run out KPIs

When you have supply problems you need to know what stock items are most ‘at risk’ of running out, when are they likely to run out, and by how much you are likely to be short.

If you have this critical information you can put a plan in place to help procure the shortfall and intelligently allocate remaining stock.

A basic risk of run out spreadsheet can be easily set up using data on current stock levels, items on order / in transit, demand forecasts and lead times. It’s then possible to work out:

How many days’ of stock you have left until you run out
The total number of days you will be out-of-stock (and the longest period, if required)
The total amount of units you will have out-of-stock (and the largest quantity, if required)

However, such calculations are only useful if you have accurate data on your current stock levels and accurate forecasts.

If demand is consistent these calculations could be done once a week, maybe less. With more dynamic demand, they would need to be as often as possible.

Whilst this process sounds time-consuming, you could choose to just focus on your most critical or profitable items. The aim is to help your team understand their upcoming stock challenges and put a plan in place to alleviate the issues.

Up your forecasting game

Whilst forecasting right now is extremely difficult, it’s important to get calculations as accurate as possible. The number one way to help improve stock availability is to understand what stock is needed in the first place! When forecasting, always remember:

Base forecasts on an appropriate historical sales/production period that’s similar to now (for most this will be a period of growth) and use that as the base forecast, instead of 2019 or 2020 data.

Look out for stock items with demand trends (rising or falling over a sustained time period) or with seasonal demand (annual peaks and troughs) and adjust forecasts accordingly.

Qualitative demand data is very important when markets are changing at a dramatic pace. Some of the most up-to-date information you can source will be from your sales team, customers and industry trade bodies.

Ensure your purchasing and sales/production departments are communicating on a regular basis. At the same time, having a proactive dialogue with your major customers on upcoming requirements is essential for accurate ordering.

Remove periods of stockouts from forecasts

Over the past 6-12 months you will most likely have experienced periods when items have been out-of-stock. Make sure these are excluded from forecasts, or they will incorrectly bring them down overall.

Flag ‘no sale/production’ periods for exclusion from forecasts or even better, make an assumption about the lost volume and add this into the forecast.

Prioritise the right stock

We’re going to assume that your business has a software system to manage stock e.g an enterprise resource planning (ERP) or warehouse management system (WMS). Hopefully it provides accurate, real-time data, as this is fundamental to helping improve stock availability.

However, whilst such systems help you manage and replenish your inventory, they are rarely intuitive enough to ensure you carry optimum levels of the right items.

It’s therefore important that you do your own analysis to identify stock items that are business-critical and prioritise their management e.g check forecasts, stock levels and lead times more frequently.

A simple way to do this is to use ABC analysis. This is often used to categorise inventory items based on their sales value e.g number of sales x unit price. ‘A’ items have the highest sales value, so they are prioritised over ‘B’ and ‘C’ items.

For a more accurate picture, some people also include the number of times an item is sold. This helps prevent over-stocking of relatively high-value, slow-moving items and ensures that low-value items with regular sales are identified as ones to watch.

Stock can also be classified based on other ‘business critical’ criteria, including ‘risk of run-out’, ‘uncertainty of supply’, or ‘importance to production’.

Allocate stock intelligently

When inventory supply is disrupted it’s critical to be smarter with stock allocation and make optimum use of every stock item in your supply chain. There are a number of ways to do this:

If you trade across multiple sites, double-check for excess stock sat in warehouses where demand is low and relocate it to places where sales are more buoyant.

Be ‘strict’ when allocating stock to regional sites. People often ask for more stock than their forecast states, so they’ve got that ‘extra cover’. But shipping more stock than needed to one site risks leaving your central warehouse short to supply others.

Understand your stock limitations (using a risk of run out report) and then decide what to do with what you have left. This may include giving it to customers that offer the highest margin, or those that take the biggest volumes. As always, ensure plans are communicated along the supply chain.

If possible, centralise ordering and stock decisions. If this isn’t operationally viable, make sure everyone is following the same replenishment ‘rules’, and feeding information back to a central database. This will make it easier to understand stock requirements across your business as a whole.

Adjust reordering calculations for variable lead times

Right now it’s critical to closely monitor lead times to mitigate their impact on fulfilment.

Where possible, actual lead times should be tracked and ‘action’ taken when they begin to deviate from expectations. This may include increasing safety stock levels, shortening order cycles to reduce the risks associated with a delayed big order, and switching suppliers.

Some stock management systems have the functionality to take supplier lead times into account when calculating reorder points. If resources allow, these should be manually updated as often as possible - even if it’s just the business-critical lines.

Diversify your supplier network

Many companies are realising that it’s time to ‘hedge their bets’ and source their goods from more than one supplier.

If you have a broad supplier base you need to continually re-evaluate it to ensure you’re getting the best deals. Suppliers should be compared based on criteria that’s important to your purchasing needs. This could be their lead times, unit prices and/or minimum order quantities (MOQs).

Optimise shipping

If you’re importing goods into the UK, you need to make every (expensive) shipment count.

Don’t let suppliers ship half full containers. Don’t let them fill up with items that are not business critical. Check that every shipment reflects your forecast’s needs.

Alternatively, if you deal with smaller, local deliveries, you most likely have minimum order values or quantities to hit, to prevent paying carriage. Even so, it’s still important to ensure orders only include items listed in sales/production projections. Otherwise, you’re simply filling up your warehouse and investing much-needed cash in stock that your business can do without.

Let computers do the computing

Investment in technology is critical to help you manage your supply chain during periods of severe disruption. It will also keep you one step ahead of the competition as we move into a new era of trading.

Automated systems will:

Provide agility and control to manage the moving parts in a supply chain and to act quickly and decisively.
Automate every day, manual tasks, freeing-up time to communicate with customers, manage their expectations and solve their issues.
Ensure data transparency and improve data accuracy so decisions can be made based on facts and not ‘guess-work’.

Written by Peter Drakeley, Head of Customer Success at EazyStock.

Ten rules for managing stock and improving availability during times of shortage.

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