Have you taken the time to define your inventory replenishment time? Have you outlined the processes needed to ensure your inventory doesn’t encounter the high costs of inventory stock outs? Most companies rarely take the time to define their replenishment time. Instead, they try and dictate their terms of service with vendors by asking them to do everything possible to shorten their delivery times.
Sometimes it involves making outrageous demands. Sometimes it involves purchasing from multiple vendors and yet in other cases, it involves purchasing a higher volume than needed. Unfortunately, purchasing too much is often just as costly as not buying enough. Therefore, defining your inventory replenishment times is essential to defining your overall turn times on finished goods. So, what are the steps involved in defining these replenishment times?
Your Company's Inventory Replenishment Times
A company’s replenishment time includes far more than just the transit time on goods from one warehouse to the next. First, there’s the processing time to generate the purchase order. Companies must streamline their process in order to improve how fast a purchase requisition is generated. Second, there’s the vendor’s processing time of receiving the order and entering it into their system. Third, there’s the actual transit time in shipping from the vendor’s location to the customer’s. Fourth, there’s the time needed for quality control, inspection and receiving at the customer’s location. Finally, there’s the time needed to actually receive those parts into the company’s inventory. When your company clearly defines its inventory replenishment times, it’s in a much better position to reduce these times.
Minimizing the impact of lost time in each of these aforementioned processes, should help to reduce your company’s replenishment time. More importantly, being successful means the company can offset delays in transit time with faster processing times along the four remaining steps. Here is a depiction of these five aforementioned steps.
The above definition of replenishment time is an essential step in defining your inventory safety stock levels
Companies that work closely with their vendors are able to streamline the process of both placing the purchase order and processing it. In this case, the best relationships focus on reducing the time needed to complete the first two steps of the process. This allows the company to focus on speeding up the final two steps on their own. So, what are some of the ways this can be accomplished? More importantly, what are the requirements that make this strategy successful?
To learn more about how to measure larger volume purchases versus holding costs, please read: Inventory Carrying Costs Versus Higher Volume Purchases
1. Online Order Collaboration: Customers that are able to place orders online with vendors are able to dramatically reduce the time needed to complete the first two steps in their replenishment time. Instead of going through the hassle of generating the purchase requisition, emailing it to the vendor and hoping they receive and process the order on time, companies can simply bypass the first two steps entirely by ordering online. No more concern about time-consuming order entry. No more excuses about not getting the information over to shipping.
2. Immediate Recognition of Order: For this approach to work means the vendor’s system must immediately recognize the order being placed. B2B (business to business) sales transactions are much more involved than B2C (business to consumer) sales transactions. Ordering online for consumers is relatively easy, but in B2B sales, it’s a much more involved process. The vendor’s system must immediately recognize the customer’s order. This is especially the case if those parts are custom-made.
3. Cohesive Documentation Control: A number of companies ignore the time it takes accept shipments. This time is exacerbated when the company lacks the tools to immediately accept and receive parts. In business to business sales, both customer and vendor must have strong, cohesive documentation control. In fact, they must share this documentation in such a way as to minimize the time it takes to accept and receive shipments of parts & materials.
Take the time to define your company’s inventory replenishment time. Don’t ignore the time needed to successfully complete these steps. Most companies underestimate these times. Instead of being proactive, they become reactive. Instead of getting those parts into inventory, they end up missing out on sales. It may only amount to a day or two, but in today’s economy, a day or two can mean the difference between business won or business lost. More importantly, establishing your inventory replenishment times will go a long way tod determining turn times on finished goods.
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