The objective of a Supply Chain is ensure right stock is in the right place at the right time at the best cost throughout the process. When approaching the topic of stock management, it’s easy to forget some of the basics. Here, we’ll discuss certain some often forgotten essentials.
1) Inventory Optimisation Vastly Impacts Company Results
Daily stock management can take many forms depending who carries out the task. A warehouse manager reduces inventory to save space and to increase efficiency in preparation tasks such as reducing handling and increasing safety measures. The store sales team seeks to limit the risk of being out of stock and a CFO wants to reduce cash in inventory.
Due to the various perspectives, the right amount of stock to have on hand can be subjective. An important point to remember is that stocks are at the heart of the distributor’s performance and there are multiple stakeholders in the process. The update of stock on hand tremendously impacts the company’s bottom line and customer service experience. Optimising stock quantities does not necessarily mean reduction, rather flexibly adapting by anticipating variations in demand.
Several benefits are a result of updating and optimising stock:
- Fewer breaks in the supply chain. This results in increased customer satisfaction and an immediate increase in sales.
- Shorter consumer lead times. This also increases customer satisfaction and loyalty, increasing turnover.
- Less unnecessary stock to be sold at the end of the season, increasing profit margin.
- Less stock generally held by the company, and therefore a “release” of cash to invest and develop the network and sales channels.
With tools in place for automatically anticipating supplies, we can now better plan business activity and spend more time on higher added-value tasks such as improving productivity (warehouse, central, store), sales, and a strong presentation on store shelves.
2) The Difference Between Presentation Stock & Security Stock is real
When referring to the stock on store shelves, it’s important clarify the difference between presentation and security stock. Presentation stock is visually appealing and is the merchandise on store shelves. Security stock is kept on hand and useful to reduce the risk of stock shortages.
The two types of stock are oftentimes confused by inventory control tools, including those based on logic « mini-maxi ». As the name suggests, the presentation stock is only for presentation purposes, and relies primarily on an analysis of the physical capacity on store shelves.
Security stock has a very different role since it’s stock on hold in case of uncertainties of additional need in the future. This uncertainly can come from several different factors:
- Uncertainty related to sales forecasts (link to “5 Popular Beliefs about Sales Forecasts”)
- Anticipating an unreliable supplier who might not meet the delivery date or not deliver the quantity ordered.
- Possible computer stock reliability issues (see “Truth 3”)
To calculate security stock, a modern procurement system evaluates the uncertainty of an order’s parameters to determine the risk of falling apart, adding safety stock to reduce this risk to an acceptable level. A poorly regulated security stock can have the effect of generating over-stocks or ruptures. As the demand fluctuates over time and between sites, it is imperative to constantly adjust the security stock.
The presentation stock can be relatively fixed (but it is modified only when the visual display of the rays, the planogram or the assortment is modified), while the security inventory changes. Given the high number of values to be set (tens of millions), this requires a calculation system that works on the highest performing day and combines article and store and warehouse data.
For best practice, the presentation stock should be in the hands of sales teams accompanied by merchandising teams. The security stock needs to be monitored and piloted with the assistance of supply chain teams. In conclusion, each of the two stock types must refocus on their key competencies in the overall company performance.
3) Never Only Rely on Computer Stock!
Whichever processes and tools are put in place and oftentimes costly, the computer stock contains errors. The quantities of a given reference (actual physical stock) are often different from the quantities available in the computer tools (computer stock). These discrepancies come from different places, such as errors of capture, theft, bar code errors or stock positioned at the wrong location. Due to the various manipulations of physical stock, even with few data errors, these errors build up throughout the supply chain and cause deviations affecting up to 50% of inventory data.
The discrepancies have negative consequences for the company as they cause stock-outs and decreased turnover, inability to accurately track products, losses (when the product is outdated before it is found), difficulty in steering supplies and distorted financial vision. The company sees a decline in profitability and operational efficiency. It’s imperative to maintain a quality of stock data at each site, and at any time.
To achieve this, general inventory checks can be carried out. Due to the high cost, deviations aren’t correct more than once a year. Emerging technologies such as RFID make it possible to easily update inventory and improve the quality of stock data. However, this requires a significant initial investment and repeated cost of use.
A less than ideal effect of the computer stock error includes conventional procurement systems being based on average past sales to predict future sales. When the computer stock is false, the break can’t be identified and since there were no more sales per the stock out, the forecast is zero. For this reason, the system no longer has control and the product remains unavailable until the next inventory.
The latest procurement support solutions enable early detection of inventory errors by simple calculation, automatic correction of sale history and automatic replenishment of sales outlets.
4) Manage Product Life Cycle from Day One
In supply management, a distinction must be made between permanent and seasonal products purchased in limited quantities for a given period.
A seasonal product will arrive at the end of the sales period. After the sales period, the remaining stock is unnecessary, even damaging. That’s why it is necessary to pilot the base stock required by establishing a compromise between none to avoid residuals and just enough stock to succeed in sales.
This holds particularly true in the textile sector where the classic mistake is to control the end of the product life when there is less stock at the warehouse than quantity need to supply to the store (shortage situation). Unfortunately, there is the risk of sending too much stock to low-sellers. This stock will then have to be settled (loss of margin) or transferred to other stores, with additional transport cost.
It is best to anticipate this shortage, which can be done with precise sales forecasts. This means not sending the stock to a requesting store if the chances of selling are low. The stock should be kept for requesting stores who are more likely to sell the stock. This enables minimal unsold stock and maximises the chance for the retailer to sell each item at the best price without cluttering stores at the lowest sale potential. The distributor will maximise flow, optimise its turnover, margin and limit unnecessary transport.
5) Digitisation Deepens Stock Management Capacity
To resist the competitor pressure or simply to recover, all distributors have initiated digitisation projects. Consumers expect immediate interaction with the brand through multiple channels to view, buy and return products. This implies a diverse and complex flow of products:
- Products viewed online will be reserved on this same site, removed two hours later from store shelves and returned via a relay point. How can we guarantee the immediate availability of the product?
- Products purchased on the e-commerce site will be returned to a store of the sign (which sometimes does not even have this product in its assortment). How can this product be reintegrated to the stock? How can we guarantee equivalent store and web prices?
- A product is reserved by a customer for pickup or delivery in several weeks, how can we guarantee the product will be present at the right time, without inflating the stocks?
- A washing machine is purchased in-store and is delivered two hours later. Is it necessary to store this item in the store? Why not another store in the area or a stock hub?
In order to meet expectations and to control costs, it’s essential to establish centralised supply to coincide with channels and flows. This supervision requires advanced and agile control consoles and ultimately supports company solvency.
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Reverse constraints into opportunities.
“Stocks are a constraint, they cost a lot, they take up space, they perish …”. This is now a reality and a reason to more tightly manage strengths. Setting up the appropriate processes and investing in next-generation IT solutions are of the utmost priority.
Such solutions will enable your staff to have reliable and updated stock, with significant gains in turnover (more than 4% regularly observed) and stock value (between -20% to -30%).