Inventory ordering begins and ends with knowing what’s coming in and when. It’s important to not only have real time data on receipt dates and quantities, but also on unfulfilled shipments, overages and shortages, as well as delays you weren’t anticipating. These insights will play a crucial role in determining your ability to fulfill sales on time and subsequently, your future order quantities.
Upon receiving your inventory, you should also be made aware of quality control (QC) status. Not everything will match perfectly to the information your suppliers provide. You’ll have to dispose of some goods that don’t meet standards coming in from either your suppliers or customer returns. Be sure to account for disposals and returns back into inventory appropriately.
Beyond this visibility, you should also be aware of what’s leaving of your warehouse and when. Perhaps you have variable costing and want to account for what products are being shipped out from which lot numbers to account for FIFO costing. This sort of tracking is also beneficial if you need to take action upon certain batches such as disposal or discounting if you’re trying to sell off old products first. If this is important to you, make sure you source a warehouse with these capabilities.
If you have more than one distribution center (DC), you’ll want to make sure you account for differences in lead time when placing and allocating your orders. Perhaps you store inventory for the same channel in two separate locations. Demand for inventory held in these locations will vary depending on the sales in the regions they serve. Transit time will also vary from the supplier, which will impact your order date.
You may also service different channels with the same DC. In which case, you’ll want to make sure you’re accounting for total demand when placing orders for a single location.
To optimize your storage, make sure you take into account your warehouse capacity and pallet positions. Some warehouses may allow you to separate inventory by channel, while others will combine the inventory in one location; therefore not reserving it for any particular channel’s demand.
Vendor management plays a crucial role in inventory ordering. If you have more than one vendor for the same item, consider applying vendor scores, which take into account quality and timeliness, to allocate your orders. To quantify a vendor score, calculate their historical or true lead times over time, percentage of their inventory that passes QC, as well as their over/under production quantities. You can also take into consideration their cost and MOQ, but it’s up to you to weigh the benefit of quality and speed over cost.
Coupled with meeting demand, warehouse, and shipping requirements, allocating orders to vendors can be an intricate process. When done correctly, you can capitalize on the strategies put in place to increase profitability such as competitive vendors and multiple warehouses.