Picture this: an employee reports that an item is out of stock. What do you do? Typically, you might start by searching every possible place for a spare. Sometimes you can locate one but, more often than not you can’t. Your next step may be to locate the item from a local supplier and, if need be, have one sent overnight. Now you have to make do until the critical item arrives. All of this will cause your purchasing department to frantically purchase the part, coordinate special handling, and overnight shipping costs. All of this pales in comparison to machine downtime or work stoppage. You know that you need to solve this recurring problem and all the costs that go along with it. You may have every intention of coming up with a fix, but when the pressure is off and you’re up and running again, it won’t be long until the cycle starts all over again.
Stock-outs happen for a variety of reasons including spikes in demand, varying lead times, incorrect reorder points, reorder points that are focused on supply-side data, or a manual reorder process that is inconsistent and prone to error. You know when a stock-out occurs it isn’t long before a machine or process goes down, but how much is a stock-out costing your business? Fill out the calculation form at the bottom of the article to see how much a stock-out is costing you.
Some people may think that the simple solution would be to buy enough inventory or raise the re-order point such that they sit on enough safety stock so that it never occurs again. In reality, this solution is backward because this increases the total dollars under inventory management. If you can’t raise your reorder point, how can you eliminate stock-outs without overstocking?
In order to solve these inventory problems, first, drive the inventory levels to the absolute minimum without affecting the service level. Next, implement an automated dispensation and replenishment system. With this inventory management system, you will be able to collect and analyze actual demand-side data so that you can properly set the reorder points and reorder quantities. Sophisticated inventory control systems have algorithms for reordering that will properly set reorder points based on demand even if it is erratic. Simply setting reorder points using actual demand data (which means you are reordering based on how you consume things) instead of supply side data will significantly reduce the stock-outs and increase service levels with a negligible impact on the MRO inventory value.
Our solution sends critical alerts to keep you in the know, reorders automatically when stock hits the minimum, and uses a powerful algorithm that tracks the use of your items to help you avoid stock-outs or MRO shortages. You won’t need to worry about stock-outs and the associated costs when you have an automated dispensing machine solution to track your items.
Remember, this is part five of a seven-part blog series on solutions that increase savings, efficiency, and productivity with industrial vending systems. Click here to go back to the first blog of this series about reducing consumption. Stay tuned for our next post about purchasing cost reductions.