Incorrect inventory mix costs industry dearly

A Technology Group International product story

Edited by the Manufacturingtalk editorial team Feb 5, 2007

Rebecca Gill, vice-president of Technology Group International, explains the problems of having the incorrect inventory mix.

Distributors of items with long lead times of 30 days or more, face a limited number of options to remedy a mix issue.

The best course of action is to alter buying habits.

This is a multi-step process which includes three tasks.

First, create a continuous flow of product from a supplier in which you "re-order" frequently (weekly).

This represents the replenishment cycle time for the item, which is less than the product lead time.

Second, reduce inventory levels to be reflective of more frequent ordering.

And third, reduce exposure to excess inventory potential.

Rebecca Gill, vice-president of Technology Group International explains, "Incorrect inventory mix or stocking the wrong inventory occurs most commonly when a distributor sells products with multiple options or products which are similar in nature".

"The cause of such stocking issues is generally a result of one of the following factors".

"Changes in historical product mix demand, maintenance of all combinations of options in inventory, and lack of local ability to alter options on products are all underlying causes for stocking the wrong products".

Distributors of items with short lead times of 30 days or less, are similarly limited in the number of options to remedy a mix issue.

The best option in this scenario is to increase ordering frequency and reduce the volume associated with each purchase.

This allows a reduction in inventory levels to be reflective of more frequent ordering (an effectively reduced lead time).

A relatively quick correction for excessive inventory is to review existing vendor lead times and order frequencies per product SKU.

For top-moving products, review the vendor lead time, the order frequency with which you purchase the item, and the average volume of each purchase.

If issuing purchase orders less frequently than one quarter of the lead time, then distributors are maintaining excess inventory of the item and thus increasing the likelihood that one will have an incorrect inventory mix if demand patterns shift.