Adequate inventory control is crucial to the success of any business dealing with today’s increasingly complex supply chain. Maintaining optimal inventory impacts not only your warehouse facility’s production efficiency -but a well-stocked warehouse also ensures customer satisfaction. These account for the two key factors that ultimately drive your company’s bottom line.
Most businesses relish high production because it reflects elevated demand that translates into increased profits. Of course, production is non-existent if you do not order raw materials first. So it begs the question, how do your keep inventory low to reduce holding overhead and sustain a maximally organized warehouse operation?
Economic order quantity and inventory control are unique to every business. The goals, however, of every enterprise are generally the same. Almost every business owner wants to optimize inventory space to avoid excess costs. Cluttered warehouses often sit filled with disused and obsolete materials that must be removed or destroyed. Furthermore, a less than optimized storage facility is always more resource-intensive.
Accordingly, the keen business owner constantly seeks to maintain an ideal inventory level that maximizes productivity and enables expedient customer service. When logistic industry professionals find this golden mean, they see their inventory costs reduced by leagues. Furthermore, inventory optimization offers a strong peace of mind in knowing that there are enough materials to sustain the facility’s required production levels to satisfy consumer demand.
This article analyzes a few different warehouse stocking scenarios before suggesting some tips on simplifying inventory control through automated management systems.
The different stock level types
To ensure adequate inventory, businesses conduct a detailed analysis of different stocking models to avoid potential pitfalls to meeting customer demand. The most desirable outcome is to have just enough stock to fulfill projected sales. However, because consumer demand can be hard to predict, companies implement diversity stocking models to avoid under or overstocking at their facilities.
Minimal stocking levels
Stocking minimally is the first and most common approach to inventory optimization. On the one hand, this stocking model guarantees enough materials to sustain current production. But, on the other hand, should current production levels increase, there’s a risk of not having enough materials to continue production. This is called a stockout. It usually results in costly downtime at the factory.
Minimum stocking levels are unique to every warehouse and should take into account the following supply chain factors:
- Lead time – the estimated time it takes for a customer to receive a product after placing an order
- Consumption time – an average of material consumption based upon past production figures
- Nature of Material – some limited, special order products require specific materials that aren’t required for minimal stocking
- Restocking levels – fixed, pre-established levels for reordering materials to avoid stockouts at a facility (Restocking level = MaxConsumption x MaxReorder Period)
Maximal stocking levels
The inverse to the minimal stocking approach is maximal stocking. This is the highest level of stocking at a facility before it is considered beyond capacity and technically overstocked. Most companies do not practice maximal stocking because excess inventory leads to cluttered warehouses with high holding costs and increased stock discrepancies.
Maximal stocking levels are calculated based upon these factors:
- Available capital for purchase orders
- Maximum quantity requirements for material
- Available warehouse space
- Best case scenario for consumption rates
- Potential changes in material price
- Maximum shelf life of materials
- Regulatory constrictions
- Access to materials
- Any predicted changes in customer demand
Maximal stock levels at a facility are calculated using Wheldon’s formula that states:
- MaxStock = RestockingLevel + RestockingQty (MinConsumption x MinRestockingPeriod)
Dangerous stocking levels
Companies should never operate at dangerous stocking levels, although they may from time to time. This is especially true given the state of today’s supply chain. Once a warehouse facility reaches a dangerous stocking level, it risks a potential stockout. As soon as inventory supply falls into the danger zone, expediting materials becomes necessary. The fundamental problem with expediting is that it costs more money, and the extra fees are considerable.
The formula for calculating dangerous stocking levels is basic:
- DangerLevel = AvgConsumption x MaxEmergencyRetockingPeriod
Automating your ordering systems
Inventory control and warehouse space optimization aren’t easy. That is why companies dealing with high volumes of stock across multiple sites are seeking out software for manufacturing companies to automate their order systems. As the industry evolves, automation software remains vital to any enterprise managing high inventory quantities.
Automated stock replenishing technology works in tandem with your existing point-of-sale (POS), RFID, and barcode scanning systems to continuously track and trace your stock levels. Once your stock levels become low or reach a dangerous threshold, the system alerts your purchasing team. Or, if preferred, the software can be programmed to automatically place reorders the moment your stock depletes to a specified figure.
Automating replenishing systems help businesses reduce production costs and maintain minimum stock levels. Because this process is automatic, it’s not subject to human error or the resource-intensive strategizing required to maintain constant optimal warehousing levels. Automated restocking systems are also effective at reducing waste while increasing turnover rates. Most importantly, stock replenishing software keeps your warehouse from becoming congested because you can program it to optimize your available space.
If you’re struggling with maintaining minimum stock levels, automating your reorder procedures can go a long way in preventing wasted expenditures associated with under or overstocking your facility. For most business owners, the objective is to maintain a high level of customer focus while expanding the scope and reach of their brands.
WiSys, and its real-time material management systems, have a proven of helping businesses regain control of their warehouses so business owners can focus on customer satisfaction and growth. WiSys can help solve any problems you have implementing SAP Business One software.
Contact WiSys by phone today at 770-955-3530 for a quick discovery call to find out how our SAP Business One and automated replenishing solutions are right for your business.