So, you now have a good handle on your inventory level and the service is within acceptable ranges, but you can’t quite reach your target inventory turn number. Here are a few tips to help you pinpoint some areas that can quickly get you to that target turn number.
#1 – Order Cycle Analysis
This is one area that is often overlooked as a layer of inventory that can hold significant amounts of inventory if not properly maintained. The key achieve maximum effectiveness is to match your order cycle with the order minimum or maximum for the order. Let’s say you have an order minimum or $5000 for the order and your average days of supply for this order based on the current forecast is 13 days. Your order cycle is set to order every 7 days and each week when you order the total amount is built to $5000. No problem right?
Actually, because of this schedule you could be holding an additional 5 days of inventory more than is needed to achieve your service level. The replenishment graph below illustrates how this inventory is accumulated.
By extending the order cycle to create the order with minimal extra days, the inventory balance is allowed to reach the service point eliminating much if not all of the extra inventory.
#2 – Scheduled Orders
In some cases, scheduled orders are a requirement from the supplier. However, many companies still operate on a schedule or calendar because it is easy to remember and schedule. When you are ordering based on a schedule many systems will factor additional safety stock to cover the lack of order opportunity between cycles. Changing cycles to a “floating” or “as needed” schedule when possible may eliminate some additional safety stock while still maintain service levels.
#3 – Buying Multiples
Some replenishment systems today have functionality to increase the order quantity to the next highest buying multiple (pallet or layer) if certain economic factors or percentages are reached. In most cases these systems do have logic to automatically change the buying multiple to a smaller buying multiple when the product is coming out of season or demand is trending down. Reviewing these buying multiples and making adjustments where applicable could eliminate that extra layer of inventory.
These are only a few tips to optimizing your inventory levels. Stay tuned for more tips in the coming weeks.