At Slimstock, we know that one of the reasons for maintaining inventory is to provide customers with the best possible level of service. However, many Supply Chain leaders spend sleepless nights worried about finding the balance between product availability and the cost of the supply chain.
FACTORS THAT INFLUENCE THE INVENTORY LEVEL
The importance of having inventory is primarily based on having the stock available to meet the needs of our customers. However, it is not profitable to maintain a 99% service level in all products. For this reason, the actual level of inventory required is influenced by several factors:
- Volatility in supply.
- Supplier restrictions as minimum order quantity.
- The storage strategy in place.
- Service level contracts with customers.
- Acquisition of economies of scale and cost optimization.
- Minimization of shipping costs.
- Service level expected by the client.
- Maintain the balance between the necessary level of availability and the inventory value, so the business is profitable. For this reason, we cannot have much inventory or little; you must have the optimal inventory.
HOW TO IDENTIFY AVAILABILITY PROBLEMS IN MY COMPANY?
While the excessive stock may override margins, too little can be equally destructive for service levels. After all, how can a company compete if it cannot meet demand on time?
Based on our experience of working with more than 950 organizations worldwide, we have recognized the most common signs to identify availability problems in a company:
1- Too many empty shelves that must be full
The first and most obvious indication that a company has availability problems is empty shelves. Of course, buying the stock to keep the shelves full is not a reason to keep inventory. However, it could be a sign that something is wrong. Also, when there are empty shelves in one part of the warehouse, this is often reflected in a high excess of stocks in other parts of the business.
2- An excessive amount of backorders
For many companies, pending orders is an instinctive reaction to situations of lack of stock. Although customers may be willing to wait for the stock to be available on a strange occasion, if waiting orders become the norm, this can seriously hinder customer satisfaction. If the same products end up with backorders every month, questions should be asked as to why there is never enough inventory.
3- Excessive dependence on air freight and express delivery
From time to time, it is necessary to invest in air transport to ensure that there are sufficient levels of short-term inventory to meet demand. However, the additional cost of sending stock by air or the use of express courier services can quickly erode margins.
Consequently, as a long-term solution to ensure availability, this is, at best, suboptimal. As with pending orders, products that must be purchased regularly on urgent orders must be investigated.
4- Dissatisfied customers
If it is the first time that a business realizes that they have an availability problem because customers complain, then there is a real problem. After all, by now, it’s too late to do something about it. Even so, all customer complaints should be reviewed to describe the real source of the problem.
5- Low sales figures
At least with customer complaints, the company has the opportunity to try to solve the problem in the future. However, in the vast majority of cases, availability problems will force the customer to take their business elsewhere. In the short term, this will result in lost sales opportunities. More importantly, there is a genuine possibility that the client will never come back. As such, availability problems have a profound impact on sales volume.