Maintaining adequate inventory is a major activity of supply chain management. Manufacturers, vendors, whole-sellers, dealers, and retailers along with their logistics and warehousing partners form a supply chain network that fulfils client demands in a timely manner. Keeping enough inventory is not only important for the dealer but also for the vendor who supplies to the manufacturer. When products go off the racks and cannot fulfil demand, the situation is called Out of Stock.
Enrolling in a supply chain management course is a must for a professional aspiring to master inventory management. It is said that proper inventory management is a health index for an organisation.
Causes of OOS (Out-of-Stock) in Inventory Management.
There are a few main reasons resulting in the out-of-stock situation of the inventory. The causes are explained in detail below -
Inaccurate reporting and inadequate forecasting
Stockouts may sometimes occur due to sudden and unforeseen consumer demand surges. But these are rare incidents. In most cases, predictive demand forecasting is inadequate because of inaccurate reports on sales or existing stock reporting.
Delivery and logistics problem
Maintaining an optimum inventory is directly linked with the inventory. Global and domestic logistics have different levels of transit points and their own set of rules. Sometimes enormous delays cause stock shortages. These factors are beyond the control of retailers or distributors and hence are unavoidable at times.
Stockouts often occur due to a disparity between the actual existing stock and that shown on the computer systems. There are three main reasons which lead to this anomaly. The first and foremost is human error, followed by loss of material due to theft or damage. This may also occur due to other technical reasons.
Poor cash flow management
This is also one of the prominent reasons for stock-outs, even though the sales reporting and stock forecasting had been accurate. Inventory cannot be replenished due to a lack of funds.
The two remedies to this problem are –
- To monitor cash flow management stringently so that it does not affect the projected revenue at a later stage
- To raise funds timely through financial institutions.
In-efficient stock replenishment management
This is a very common stockout case. The retailer may not have a systematic stock replenishment procedure in place and misses out on an opportunity for a lucrative sale for want of stock. A system-generated alert on stock replenishment management can solve the problem and a loss on sales can be averted.
There are several decision phases in supply chain, which each stakeholder in the network must perform with utmost care and due diligence. These decisions prevent frustration with customers due to stockouts and help to retain them.
To start with, the manufacturer must have a robust vendor inventory management, so that their mutual cash flow should not be stressed. Products are manufactured based on the demand reports at the distributor, dealer, wholesaler or retailer levels. An accurate projection from each of these stakeholders fortifies supply chain management.
How Do Supply Chains Reduce Stockouts?
There are several time-tested methods of stock-out reduction or stock optimisation. These appear as decision phases in the supply chain by the concerned stakeholder at that stage. Some of the most common remedies are mentioned below –
Physical stock counts on a regular basis –
Regular physical stock checking is the most commonly practised method. It gives management a real ground idea regarding the shrinkage due to damage or theft. This process acts as preventive care.
Lead time optimisation
The time between the placement of an order and receiving the same is very crucial for maintaining stocks. The seller should have an estimate of sales quantum within this lead time period and should place orders accordingly so that the shelf is never out of stock at a given time.
Improve demand forecasting
The demand forecast should be close to accurate. This saves stakeholders not only from stock-outs but also from losses from excessive inventory, working capital and logistics expenses. Predictive data analysis helps to make a reasonable forecast.
This is where the study of a supply chain management course comes to relevance. A proper demand projection improves the cash flow, revenue and profitability of an organisation.
Reorder points for each product
The inventory is a mix of different products having different demand curves in terms of quantity and time. Thus, the reorder level of each product is also different from the rest and should be followed separately. The reorder level is a function of the safety stock for the given product.
Develop strong relationships with suppliers
A strong professional relationship bond is the essence of a good business. Sellers and suppliers must have mutual trust and understanding so that fulfilling the demands of the client is their mutual goal. They should have business meetings at regular intervals and should discuss their respective shortcomings and probable solutions. There should be an exchange of easy and free-flowing communication at each level so that there are no surprises at a later stage.
Modern inventory management software
Automated commands using inventory management software reduce both time and risk of inventory management.
Vendor Management System is a system based on which suppliers maintain a specific stock level based on shared data by the retailers. Having the right product at the right time and at the right place is very important and reduces unwarranted inventory.
Retailers implement just-in-time inventory systems to make the above process perfect. The idea of keeping consignment inventory and safety stock is also another process of enhancing customer satisfaction with a little more additional expense. The common tasks performed are -
- Setting the reorder level for each product
- Automated stock counts
- Generating sales reports amongst other
All these automated processes require a deep understanding of data science and artificial intelligence, based on which these techniques perform. An aspirant in this field should study supply chain management from a reputed institute in order to carve out a successful career.
The Digital Supply Chain Management With E&ICT, IIT Guwahati course at Imarticus will enable the prospective candidate to boost their career towards a bright future. The duration of the course is 6 months. The mode of training is online as well as offline.
Visit the official website of Imarticus for more details.