Most computer systems provide buyers with out of stock reports. These are listings of stocked products with no available inventory. Because of the stockout, sales orders cannot be filled and salespeople cannot provide the service their customers expect. Buyers must 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”.
Check with your IT department or software support people to see if buyers can be automatically notified as soon as one of the following conditions occurs for an “A” ranked item as well as other products that are crucial to maintaining a high level 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 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 stockout does occur, the buyer will not be caught off guard; they will have information in hand as to when the out of stock product will be available.
Actual Usage by the 7th Day of the Current Month is Greater than 50% of the Forecast Demand for the Month. Often times a buyer will be unaware of a surge in sales of a particular product until it is out of stock. If a buyer knows that sales of a product have suddenly “taken off”, he or she can bring more of the product into inventory before a stockout occurs.
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 buyer can contact the vendor to determine if the delivery of the latest stock receipt is reflective of future lead times for the item. If so, the buyer can issue replenishment orders for the item earlier than he or she has done in the past to avoid a future stockout.
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 stockout? 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 alert will require their attention. When we propose early warning reporting to our customers their buyers, inventory planners and purchasing agents, they 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!!!