If you want ‘good’ product availability, inventory is a necessary evil
Product availability raises a lot of debate about how much inventory should be held. While the sales guys want the availability of products to be as high as possible, the number-crunchers in finance want to minimise the investment of working capital and cut costs. It’s a real conundrum.
But there is one thing that everyone can agree on: Not having enough stock is a very big problem indeed! Afterall…
NO STOCK = NO SALE
NO SALE = NO CASH!!!
What is product availability? And why is product availability important?
Tony Wild, the inventory expert, once said: “Inventory is the result of lack of data.”
But what about a lack of inventory?
Of course, poor data is also a major cause of product availability issues. However, this supply chain problem is also a symptom of lack of focus, time, poor processes and communication issues.
In theory, these all sound like quick and easy fixes. However, once you dig a little deeper, availability issues are often far more complex.
Product availability Explained
For example, take the following scenario…
Your team is already stretched with lots of problems to resolve.
They need to stay on top of thousands upon thousands of products.
There is a general lack of insight and often you only become aware of a problem when your customers start complaining.
And please don’t think we are just talking about product availability in retail.
Many of the businesses we work with know these challenges all too well. As a consequence, supply chain teams typically find themselves in an endless cycle of firefighting: fixing problems that could have been prevented instead of adding any real value.
This is why we have written this article: to help your business take control of its inventory processes and drive performance improvements across your supply chain!
What’s causing your product availability issues? and what should you prioritise?
Before we move on, there is one thing we cannot afford to ignore.
You are likely to face lots of product availability issues on any given day. Here are just a few examples you may encounter:
8 Challenges of product availability
Crippling availability issues
Supply chain bottleneck
Unexpected customer orders
Supplier payment issues
The list could go on and on…
All of these issues demand your attention.
And you can’t just brush them under the carpet and pretend they are magically going to go away. But here is the big elephant in the room: You can’t fix everything. At least not quickly.
So, you have to prioritise. But how can you determine what tasks are important and what tasks you can afford to ignore?
Unfortunately, there is no magic wand. You can’t just cast a spell and make all of your all inventory issues disappear (if only this were possible…)
But don’t worry. In this section, we will explore some simple tactics to help you optimise your workload to get the most important tasks done effectively without being bogged down by unimportant problems.
How to improve product availability?
Tip 1: Identify your urgent Vs important availability issues
We all know that supply chain decisions ripple across the entire organisation. Unresolved supply chain issues behave similarly. However, some issues will always be far more important than others. It’s our job to identify these tasks and fix them as best we can.
Firstly, all tasks can be broken down into two main categories:
Important – these are tasks which directly help us achieve specific goals.
Urgent – These are tasks that require attention. However, these tasks are often associated with helping someone else achieve their goals.
What do these tasks look like in our world?
In the context of the supply chain, an example of an ‘important’ task could be to review forecast exceptions.
This is important because this task helps us to make better decisions around inventory.
As a result, this task helps us to achieve our goals of securing product availability or minimising supply chain cost.
An example of an ‘Urgent’ task could be placing a last-minute air-freight order to fulfil a salesperson’s promise to a customer. This may not directly impact your team’s objective. However, the impact of not doing this is immediate- E.g., if you do not order the stock, the sale will be lost.
Often the supply chain team is inundated with ‘Urgent’ issues. Yet at the same time, the normal day to day important tasks still have to be completed. It doesn’t take much for your hardworking team to become overwhelmed!
Now let me ask the burning question: Which of these two above examples would you do first?
Now imagine that you only have time to do one of these two tasks- which one do you ignore?
When it comes to product availability issues Eisenhower knows best!
In 1954, President Eisenhower addressed this classic workload conundrum:
“I have two kinds of problems: the urgent and the important, and the important are never urgent.”
Based on Eisenhower’s principles, business thought-leader, Steven Covey, took this concept a step further and popularised the Covey Matrix.
This simple tool helps us think about our priorities (especially in times like these!):
Tip 2: Apply the Covey Matrix to hit your product availability goals
There are lots of actions you can take to manage product availability issues. Some of them will be more important than others. So, apply the Covey Matrix to prioritise your workload.
If you do this well, you will soon see fantastic results as your team focus on what matters!
Here is an example of how you may want to categorise specific tasks:
Top tip: By segmenting your assortment by strategic importance, you can focus your time and energy to ensure high stock availability on the products that matter most. Click here to read more about assortment planning.
Tip 3: Adopt a management by exception approach to guarantee high product availability
When it comes to identifying your priorities in practice, management by exception is key! But what is management by exception?
Management by exception is all about automating tasks that are repetitive, boring and add limited value while focusing as much time and attention on issues that really need addressing.
By allowing a machine to do the heavy lifting, you (and your non-robot colleagues) don’t need to worry about the nitty-gritty repetitive tasks: this can all be automated! Instead, you can invest time and energy in those tasks that require a bit of human intuition.
The management by exception approach allows you to focus on problems that may exist on the horizon. For example, imagine sales suddenly soar, this approach is called ‘exceptional’ behaviour and will flag this up so that you can do something about it.
As a result, instead of getting bogged down by the ‘business as usual’, you can fix the causes of stockouts and availability way before they hit your customers.
But what counts as exceptional?
What kind of exceptions are we talking about? In essence, in the context of product availability, there are two main types of exceptions we need to worry about: forecasting & inventory.
The goal of the supply chain team is to maintain the optimal level of inventory. Therefore, when we talk about inventor product availability exceptions, we look for the following:
1) There is not enough stock to satisfy customer demand – If you do not address this, you will lose sales and disappoint customers.
2) Too much stock - If you do not take action, you will lock up invaluable working capital which could be invested elsewhere. This needs to be reviewed daily as your risks can change.
The goal of a good forecast is to try and anticipate future demand as closely as possible to the realised demand.
If the forecast is drastically different from the actual demand, this is what we could consider ‘exceptional’. For example, we may want to look out for the following:
1) The forecast differs massively from what you expect
2) The demand history data you need is either incomplete or may not be trustworthy (e.g., last month’s sales were huge compared to every other month and you don’t understand why!)
Unless these issues are managed correctly; you will lack the basis required to build robust forecasts. This, in turn, will make it difficult to make strategic inventory decisions. But what can we do to correct these issues?
Following major disruption, some businesses try and make blanket forecast adjustments across the entire assortment. This might mean simply implementing an assortment-wide rule to ignore the demand history for the period of the disruption. Alternatively, this might mean increasing or decreasing the forecast for every item by XX%.
Is this the right approach? Almost definitely not!
There are likely to be a very small number of scenarios where you need to adjust your entire assortment like this. Instead, you need to focus on specific groups.
I am not saying you need to review the forecast for each item individually- this would take forever! But you might want to group products based on some sensible (and relevant) logic and adjust the forecast accordingly.
Products from the same supplier
Products in the same category
Products sold in the same location
Products that share similar demand profiles (regular, lumpy or slow sales patterns)
Step 3: Determine how the forecast will need to be adjusted for each product group
This is where you need to speak to your friends in sales and marketing. After all, to ensure forecasts are a true reflection of what demand might look like in the future, you need market intelligence. And in times like this where you have big gaps in your demand history, you need all the insight you can get.
Based on this insight, you can determine the best approach to refine the forecast. Here are some of the questions you might want to ask your colleagues:
If demand dropped, when do sales expect customer demand to pick up?
If demand disappeared due to stockouts, will the customers place a big order once the inventory is back in stock?
Has the business won any new customers?
Are there any plans to hold special promotions or events?
Have any customers moved to a competitor and therefore should we expect sales to fall?
Step 4: Execute the adjustment
Once you have enriched your base forecast with market intelligence, it’s time to apply the changes. In addition to making the required changes to all the relevant systems, you must document the reason for the forecast adjustment.
After all, the pain of the original disruption will quickly be forgotten. And unless your rationale for adjusting the forecast is documented, this could cause some big headaches further down the line!
Top tip: Attaining a clearer picture of future demand will help you make better inventory decisions. This, in turn, will enable you to maximise inventory availability while keeping inventory in check. We have covered a few of the basics already but click here to read our complete guide to demand planning.
Tip 5: Fix your inventory exceptions to safeguard product availability!
Okay, so now we need to make sure we have enough inventory to satisfy this demand. But how much inventory do we need?
Well, in essence, we need a sufficient amount of inventory to cover the forecasted demand until inventory levels are replenished. Although, the length of this period depends on what point in the chain your next batch of inventory is at.
If you have sufficient inventory in your warehouse to satisfy demand until inventory levels are replenished… fantastic.
You don’t need to take any immediate action. However, you may want to monitor these items in case demand differs significantly from the forecast.
But what if this isn’t the case? What if you don’t have enough stock?On the other hand, what if you have so much stock you can fulfil the demand for months or even years? Worst still, what if you have even more on the way?!
What product availability issues do you need to watch out for?
When we review inventory, there are some main areas we need to focus on. The first two are focused on potential availability issues:
The next two challenges are more around minimising avoidable inventory risks (and costs!).
Tip 6: Smash your availability targets!
In this blog, we have explored how you can take practical steps to quickly identify, fix and manage the main causes of product availability issues before they hit customer satisfaction.
To guarantee consistently high availability of products, you need a solid strategy which is supported real-time insight over your inventory position. By following these simple steps, we hope you can boost availability without having to invest in huge amounts of excess stock!
Take your inventory processes to the next level…
To attain continuous performance improvement, there are lots of steps we can take to optimise our end-to-end operation. Find out how you can boost efficiency, increase profitability and further.
Product Availability Key takeaways
Identify urgent vs important availability issues: It’s essential to differentiate between important tasks, which directly help achieve specific goals, and urgent tasks, which may help someone else achieve theirs. Identifying these can prevent urgent issues from overwhelming the supply chain team and leaving important tasks neglected.
Apply the Covey Matrix: This tool, based on principles laid out by Eisenhower and later expanded upon by Steven Covey, helps prioritize tasks into urgent and important quadrants. Applying this matrix can help optimize the management of product availability issues.
Adopt a management by exception approach: This approach focuses on automating routine tasks and devoting human attention and resources to resolving issues. This means identifying and addressing problems that might occur in the future and addressing them before they impact customers.
Correct forecast exceptions to prevent availability issues sooner: This involves reviewing and adjusting forecasts based on current market conditions and intelligence, and includes backing up data, identifying the items needing adjustment, determining the adjustment for each product group, and then implementing it.
Fix inventory exceptions: Sufficient inventory should be maintained to cover forecasted demand until inventory levels are replenished. Inventory levels should be monitored, especially in cases where demand may differ significantly from the forecast.
Meet availability targets: A solid strategy, supported by real-time inventory insights, is essential to ensure consistently high product availability without needing excessive stock. Regular inventory management practices and operations optimization can lead to continuous performance improvement.
Product availability FAQs
What is product availability?
Product availability is a retailer’s ability to meet customer demand for a given item.
A measure of whether a product is in stock and can be ordered by customers.
Why is product availability important?
Maintaining good product availability helps businesses to meet customer needs, increase revenue, and maintaining a positive reputation.
How to measure product availability?
It’s important to understand that different businesses may use different metrics depending on their industry, product and the nature of their business.
What influences product availability?
There are several factors that can influence product availability, such as demand, production and manufacturing, supply chain, inventory management, distribution, competitors and seasonality.
How can I prioritize my tasks to improve product availability?
You can use the Covey Matrix, which helps categorize tasks as important and urgent, important but not urgent, not important but urgent, or not important and not urgent.
What challenges can affect product availability?
Several challenges can affect product availability including supply chain bottlenecks, unexpected customer orders, forecast errors, supplier issues, missing data, angry customers, supplier payment issues, and disrupted processes.
What are some common causes of product availability issues?