The importance of inventory in a business
Inventory is one of the most important assets of a business. It represents the raw materials, finished products, and work-in-progress that a company has on hand. Because of this, efficiently managing your inventory is essential to running a successful business.
There are several reasons why inventory is so important:
Having either too little or too much inventory can be detrimental to a business. If there is not enough stock, it could lead to missing out on sales opportunities. Whereas having an excess of the product will use up working capital that could otherwise be put to better use, and additionally incur storage costs.
We use the Pareto principle and cost & demand analysis to define required stock levels of each product class (category). The starting point is using the Pareto concept (80/20 rule) to divide products into classes. Minster WMS uses consumption – landed costs per unit * quantity used during a year as a measure to create a value against each product.
Minster WMS compares the consumption of each product against the total inventory consumption value and assess the increasing, cumulative value. Quite often 80% cumulative value will be represented by around 20% of products.
Although there is great flexibility to amend these level breaks, convention suggests that these products will be Class A, 50% of products representing around 5% of value will be Class B and the balance Class C. Additional and sub classes are also available.
Thereafter, agreed business rules can then be defined for the purchasing stock policy parameters for each class. These parameters define order frequency, critical stock level, buffer stock, maximum stock level, and so on.
Deliver critical and over-stock warnings and forecasting models (seasonal, averaging & profiled) to maintain optimum stock levels and thereby effectively minimising stock capital employed.
The Minster system reviews the stock level of every product on a daily basis to determine whether a purchase order should be raised. To establish whether a re-order is required, the system uses the standard corporate rules and links stock-holding, undelivered purchase orders, advance sales orders, forecast sales demand, supplier’s lead time, stock policy levels, preferred order days, preferred delivery days, and so forth. The Minster system offers a choice of sales forecasting methods, which includes:
Where the value of the inventory is calculated based upon an average unit cost calculated by the number of receiving.
Where the system applies the current year’s sales trend to the previous year’s weekly/monthly sales and calculates an accurate forecast.
Where the user assigns a sales profile to the product or group of products.
The profile defines when the sales are expected to occur throughout the year and automatically raises purchase orders as appropriate.
Purchase Order Processing
Automatically generated and transmitted purchase orders help to accurately maintain stock levels and the flow of your business.
The objective of the Purchase Order Processing module within the Minster WMS system is to accurately use maintained stock levels in conjunction with known and forecasted sales demand, to raise and monitor purchase orders so control over stock holdings and product availability is maximised.
The Minster system is able to transmit purchase orders to suppliers automatically in a variety of formats including XML and Tradacoms. The orders can be delivered by email, fax or via a value-added network. The system provides order acknowledgements and can accept advance shipping notifications, which can be used to plan the goods receipt activity.
Web Based Diary
The inbuilt web-based diary allows goods receipt bookings to be confirmed and managed.
The clear view allows the receiving team to plan their day’s resources and also gives an instant snapshot of the progress of the day’s receiving activities.
Daily Purchase Routines
based on actual orders received for fresh produce
This helps to limit writing off stock left unused through lack of demand and ensures freshness to customers.
Frequently Asked Questions
Read a selection of some of the questions about WMS and its impact on procurement that we get asked most frequently.
If you are wondering how a warehouse fits into the procurement element of a business you may want to think of it in alternative terms - although several other labels such as fulfilment centre, distribution centre and depot are used, in the main they all refer to a site where inventory is located. Procurement generally refers to ordering new inventory from suppliers, but it could also refer to a requisition of inventory from one of the other sites within a business. When considering procuring inventory all of these sites have to be taken into account to avoid being overstocked. The warehouse is essentially the hub which houses the inventory which is to be procured.
Procurement and logistics can often be confused. Procurement refers to ordering new stock from suppliers or sites within the business and logistics involves the movement of goods (or people). In the UK logistics generally refers to outbound goods whereas inbound goods form part of the supply chain planning and movement.
The most important thing that you can have when it comes to procurement is information! Having and using the right information to determine your optimal inventory levels is the most important thing in procurement. Some examples include: supplier information like minimum order levels, product lead time and delivery day to your area. Also, information such as demand data from historic transactions or trusted customer forecasts can be crucial when it comes to ensuring successful procurement. It is essential to make sure you have a clear inventory policy, based on product classification and target levels, don't forget warehouse capacity - avoid off-site storage when you can!