Inventory Management Best Practices for Distributors
Epicor experts at the 2013 Insights Global Customer Conference shared tips for managing the fundamentals in this critical area. As a distributor, your goals should be to:
- Fulfill orders accurately and on time
- Minimize cycle time (from receiving at the warehouse to shipping)
- Minimize expense.
Factors that can influence demand for your inventory include new product releases, offering proprietary vs. commodity products, minimizing inbound or outbound freight, setting minimum order quantities, providing vendor managed inventory, etc.
Many tools are available to predict demand. Forecasting involves using historical data to predict future requirements; it’s your best estimate based on what you know, excluding one-time events (statistical outliers) such as seasonal/cyclical demand, special promotions, etc.
For example, one well-known formula for setting a minimum stock level is:
Minimum stock level = re-order point – average or normal usage X normal re-order period (i.e., lead time)
Safety stock is used to make up for issues with lead time, suppliers, transportation, inconsistent demand, spoilage, promotional or discount programs, etc. You never want your safety stock to get down to zero.
Suggested ways to reduce inventory include:
- Maintain accurate minimum stock and safety stock levels
- Make more frequent purchase orders (spreading them out) – of course, always weighing this against the tradeoff of any additional cost
- Eliminate the root cause that’s requiring you to “cover yourself” with safety stock.
Posted by the Epicor Social Media Team