Understanding the Buying Process is the key to Taming the Beast
A few months back, we posted an article about the acronym “Inventory SOOP“, which represents the 4 stages of inventory. In SOOP, the “S” stands for “Survival Mode”, the idea that there are times when replenishment becomes simply a function of survival rather than a strategic tool for your company.
It’s not difficult to know if your company is in Survival Mode. A review of the “7 steps for Successful Replenishment” makes it pretty clear. If you are not completing the first 4 steps for success buying, then you are in survival mode, whether you know it or not.
Demand Forecasting: If you don’t have a solid demand forecast, how can you possibly know how much to order? How good can your inventory be if you don’t have a good estimate of what you’ll sell?
Lead-Time Forecasting: How long does it take your suppliers to send you an order? If you have a hard-coded lead-time, chances are it’s not right. What happens if you show a lead-time of 14 days and they deliver in 7? You will always have a week more inventory than you need! What happens if your lead-time says 7 days and they ship in 14? Uh oh…
Order Cycle Analysis: How often should you be ordering from your suppliers? Service Level Targets: Proper service level targets are critical to knowing how much safety stock you need to carry. Without completing this critical step, it is unrealistic to think you can run efficient inventory AND keep your customers happy.
“Survival Mode” can often lead to extraordinarily high inventory levels that can cost you millions of dollars in carrying costs and lead you to experience the painful reality of obsolete inventory.
Just ask the Pentagon.