Optimal stockback to basics

In both retail and wholesale distribution, matching stock to demand is critical to profitabilitymaximising service levels while minimising stock investment. This is one of the areas where your IT system can deliver a fast ROIprovided it offers the right functionality and this is properly used.

This checklist revisits the basics, some of which are surprisingly often overlooked.

Schedule buying: When managing thousands of inventory items, scheduling is vital. Set up a regular daily, weekly and monthly schedule of what stock to review for re-order and a regular schedule for orders on each supplier. Anything out of the ordinary is then easily spotted.

Information not data: Computers are good at maths so let the computer do the sums. Ensure your computer system reports stock levels as days stock, based on the current sales forecast. If you re-order an item weekly, its much easier to spot the problem if the system reports three days stock rather than 500 cases. When reviewing the re-order quantity, relate the number of days stock you are ordering to the lead time and re-order interval. Your computer should do all this for you!

Think ahead: History is bunk. Maybe, maybe not, but make sure you dont just repeat history. Base re-order quantities on a demand forecast not sales history or you will always be over or under-stocked. Systems such as BCPs Accord use an adaptive smoothing algorithm for demand forecasts, which allows it to react quickly to sales trends, but not over-react to random fluctuations in demand. Ensure you understand the limitations of the systems forecasting and leave it to do the maths for you except when you know of circumstances that it cant handlea sudden heat wave, or a significant sports event?

Manage your suppliers: Your aim is to order just enough stock to last until the supplier delivers your next order. Supplier delivery scheduling is an integral part of the replenishment process. If a supplier is regularly one day late delivering, you must make him deliver on time, or alternatively, order an extra days stock. Use a computerised supplier delivery scheduling system with comprehensive supplier performance reporting.

Scan goods in: Mistakes when booking in stock are often the cause of the biggest stock discrepancies. Until RFID becomes reliable, cost effective and ubiquitous the solution is to scan bar codes at goods receipt. The most effective system is to use a radio terminal with online real-time access to the system. The most efficient systems use bar code scanners combined with voice terminals to eliminate any keying.

Monitor low stocks: No matter how well disciplined your re-ordering, or how accurate your stock recording, there will still be situations when unexpected demand results in insufficient stock. The trick is to identify the situation early enough to do something about it. The simplest form of low stock reporting that is genuinely useful will allow you to list items with less than a specified number of days stock. However, more sophisticated systems, like Accord, use the re-order schedules and the demand forecast to calculate which items are likely to run out of stock before the next scheduled supplier deliverywhich is much more useful.

Stock rotation: Incorrect stock rotation results in stock losses or stock that has to be sold off at a discount. Correct stock rotation is achieved most efficiently with a real-time WMS, with fork lift truck drivers updating the system directly with either a truck mounted radio data terminal or with a voice terminal.

Picking accuracy: The replenishment process can only be as good as the data it is using, so improving picking accuracy is an important element of reducing stock discrepancies. The best method of improving picking accuracy without sacrificing productivity is voice-directed picking, again with real-time communication with the system.

Perpetual inventory: While the correct use of technology can help prevent stock inaccuracies, they will never be eliminated entirely, so it is important to retain the discipline of regular stock checks. A sophisticated WMS with real-time stock control makes this much easier to implement, as perpetual stock-taking can be built in to other tasks such as picking face replenishment. In this way, stock quantities are regularly checked during the course of normal activity, discrepancies are identified earlier and corrective action can be taken.

Monitor over-stocking: Finally, you will achieve the best results only with careful performance monitoring. Over-stocking can result from lower than expected demand, from stock inaccuracies, or from incorrect setting of the parameters of the re-order calculation. It is, therefore, important not only to set up regular reporting of over-stocked items, but also to analyse the reasons carefully, and take the appropriate action.

Tony Beales is Distribution Systems Director at Business Computer Projects Ltd (BCP). BCP is a leading supplier of specialist supply chain and warehouse management software. BCPs Accord integrated supply chain software suite includes comprehensive procurement, order fulfilment and voice-enabled warehouse management modules for order picking, goods received, pallet putaway, pallet letdown, and stock checking.