The importance of inventory management in national industries is considerably neglected in several economic sectors. Knowing when is the best time to place a replenishment order, what the size of that order should be and how much to keep in safety stock to protect against market uncertainties are tasks commonly delegated to the manager's intuition, lacking scientific bases to its definition. The impacts of an ineffective inventory management, both in terms of cost and service level, usually only appear when indicators of rupture and decrease in working capital turn on the red light in the meetings of the top management.
Figure 1 – Warehouse with stocks to supply a retail chain
Source: Disclosure
As they are normally defined in an intuitive way, inventory management parameters hardly hit the optimum point of operational efficiency. From the point of view of costs, an upward error leads to excess inventories with a direct impact on fixed capital indicators, which in the Brazilian economic scenario is a very bad idea given the high interest rates set by the Central Bank, something already explored by Gabriel in the article Interest rates and recession: enemies of the cost of inventories. Not to mention the risks linked to this excess, such as losses, theft, breakdowns and obsolescence.
At the other extreme, an ineffective stock setting can lead to stockouts, that is, unplanned stockouts. A direct consequence of this stockout is the drop in the fill rate, which measures the percentage of orders fulfilled completely. Customers who are not completely served are customers with the potential to abandon, so a drop in revenues can be expected if this indicator remains low for a long period.
It is also important to point out that an ineffective inventory management produces random effects among the different SKUs of the company. Therefore, it is not uncommon to see a company with a fill rate low, but with a high inventory coverage, that is, making mistakes both from the point of view of shortages and excess inventories.
And your company, can manage stocks effectively? Are service level indicators and inventory costs at a satisfactory level?
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