How to use minimum stock levels to your advantage.
This is a continuation of our previous article, looking at WMS backorder stocks.
There is a saying that “forecasting is a difficult art, particularly in dealing with the future”. Events can change on a dime and not be foreseen even by the wisest sage. I’m sure there would be a lot of procurement managers who had not put into their forecasts the possibility of a pandemic. Although the effects of Covid seem to be receding, it’s still played merry havoc with supply chain as a number of my clients are finding out with delayed deliveries and increased logistics costs. How do you put a major event like that into a spreadsheet let alone understand the full consequences of such an event. As human beings we have limited vision of what will happen next.
Even so if you don’t have any mechanism in place to deal with changing circumstances, then you’re not beginning the process of thinking about the issues involved. As Churchill once said, “those who fail to plan, plan to fail”. Even if you have goals and don’t reach them, at least you have a benchmark to improve for next time. In saying that, the whole process must be approached with a sense of humility as no-one really knows what is going to happen. Inputting Minimum stock levels into your WMS is a guide to start with.
How dear systems can determine stock movement over a period of time.
Although not a perfect guide, historical records can be an indication of what has come before, and this where database reports can be very useful. We recommend Dear Systems as there are a number of reports, we use to determine stock movements over a period of time. The sales order detail looks at the type of products sold over a date range whilst the “sales by product” measures its profitability. Other systems have similar reports but you need to get to the product line level to know what has moved. If you export these reports to excel and create pivot table graphs against a period (months, quarters, years) you can get a visualisation of how your sales have performed. If you need help with developing these reports then please let us know so we can set up templates for you.
Having the information displayed in graphical format is useful as you can see the peaks and troughs over a period of time. You may have seasonal stock, sells well in summer but not in winter. It may be driven by an event, say building up to a trade show or you just see an overall trend as products become more popular while other stock goes out of fashion. With that information you can run an average formula across the unit range per product and that will give you a base point on which to set your minimum stock level.
Advantages of delay report.
The other side to the equation is measuring how long it takes for goods to be received from your supplier. This may be a bit more involved as you may order a product from multiple suppliers. This is where a delay report comes in handy as it should display how many days have elapsed since to the PO was raised and then received by the warehouse. You then combine the number of sales anticipated over time period with how long it takes to get here and this is your X, Y Axis to give a starting point for an optimum minimum stock level. To use our previous example If you have consistent sales of the product of 50 units a month, and you know it takes 2 months to arrive then a level of 100 would be appropriate.
Over time and experience you can then modify these levels according to anecdotal information or changing circumstance, but at least this a start and the system has something to work on. Without it, you would flying blind.
Next in the series “Quantity Levels and supplier discounts: ”.
About the Author:
Malcolm Ford has been involved with ERP implementations for the past full 10 years and has assisted companies to digitise their stock movements for a variety of sectors. If you have specific need please raise your enquires to the email above.
