Inventory Management Advice

Making better use of the data in your inventory system

When the computer ascertains which items should be ordered now, that is called a “reorder review”. This is often done for a single supplier at a time in preparation for sending an order to the supplier for a number of items. The amount of time between these reorder reviews is called the “reorder review period”.

Reducing the reorder review period by a certain number of days reduces the average lead times by half that number of days. See the table in the post entitled “Shortening Lead Times” to find out how much the active inventory can be reduced as a result without adversely affecting customer service.

It should be noted that before a reorder review is carried out, the order resulting from the last reorder review should have been finalised and entered into the computer. If this is not done then over-ordering is likely to result in over-ordering. In some systems, reordering recommendations produced by a reorder review are recorded in the computer as tentative orders. This helps to prevent such over-ordering but does not completely eliminate the problem. It is, therefore, desirable to streamline the purchase order preparation process. This will also have the effect of reducing the lead time and, as a result, further reducing inventory and/or improving customer service. The magnitude of this effect is indicated by the table in “Shortening Lead Times“.

The reorder review period can be reduced to zero by ordering items individually whenever they fall below their reorder points. In these circumstances, it is important to check to see if the item concerned is to be ordered as a result of an earlier reorder review. This would result in a lot of wasted time unless the computer records tentative orders resulting from reorder reviews.

If you want to reduce the reorder review period to zero without producing a large number of single item purchase orders, the computer could be made to suggest topping up of other items to their maximum levels whenever one item needs to be ordered very soon. If this approach is used then, when an item falls below the reorder point, carrying out a reorder review for the supplier can be delayed until the ordering of that item becomes a bit more urgent. The topping up mentioned above will reduce the number of small orders.

What I am suggesting in the above paragraph might seem complicated. However, it does not need to be. I will now describe how a report generator can be used to highlight the need for reordering. I will refer to the report as the “Reordering Urgency Report”. It should list items which have been sold since the last such report was produced. They should be sorted by supplier code. For each supplier, they should be sorted in ascending order of the number of days cover provided by the quantity on hand (H) plus the quantity on supplier order (S) minus the quantity on customer back order (B). Items for which the estimated demand rate is zero should not be included in the report. The number of days cover mentioned above is equal to  (H + S – B + 0.5) / D  where “D” is the average demand per day.