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Finding balance between inventory and customer needs

By Bridget McCrea

When it comes to balancing stock with customer needs a distributor’s job is literally never done. In fact, they are a lot like those Price is Right contestants who strive to get close enough to $1, but without going over that mark, when spinning the big wheel. Too much and the distributor winds up with costly overstocks, too little and the customer walks away empty-handed.

The current business environment hasn’t made things any easier on distributors striving to balance inventory with customer needs. Ongoing market uncertainty and the economic recovery’s fits and starts have put more pressure than ever on companies whose primary business depends on an ability to have the right product in the right place and at the right time.

“Companies are gun shy about carrying a lot of inventory right now,” points out Pete Eppele, vice president of product management for Zilliant, a technology solutions and consulting firm in Austin, Texas. “No one wants to get caught with a glut of products if the economic recovery reverses.”

Establishing Stock Categories

Getting a handle on inventory challenges doesn’t have to be a difficult process. In fact, Peter Kleinman, director of distribution marketing for Melville, N.Y.-based electrical device manufacturer Leviton, says distributors can start by simply figuring out desired inventory turns or “throughput” for every SKU. Categorize items as A (fastest-moving products), B (moderate), and C (slow).

“On a grocery list, the A items include the milk, eggs, and other main staples,” Kleinman says, “versus B items like paper towels, which you don’t need as often.”

By categorizing items, distributors can quickly identify out-of-stock A items (and work to replenish them quickly) and also see which C products should be ordered on a less frequent basis. “This sliding scale gives companies a very clear picture of their inventory versus customer fill rates,” says Mark Richards, Leviton’s director of ecommerce, “and helps them achieve fill rates that are proportionate to inventory levels.”

Tracking lost sales is another good inventory strategy that can help distributors regain balance. “A lot companies lack a metric or mechanism for measuring lost sales,” says Richards. “It’s a big mystery area that – when solved – can really help a distributor develop an effective inventory strategy.”

If your firm needs improvement in this area, look principally at orders that are not getting out to specific customers, says Richards, and at anything that’s missing from those orders that are partially fulfilled. “Examine the gaps and figure out ways to boost inventory on those items that are repeatedly missing or not in stock,” he says. “This is a very good measure of how well you’re doing in terms of inventory performance.”

Lean Versus Out-of-Stock

Eppele says distributors walk a tightrope between staying lean and delivering appropriate service levels to customers. This isn’t the latest news, of course, but has become more difficult in today’s business climate. Where predicting future sales based on purchase histories may have worked in the past, he says, today’s fickle customer bases are much harder to pin down. “When new customers are coming onboard and old ones are defecting at a higher rate than normal,” says Eppele, “it doesn’t take long for your inventory to get out of balance.”

Avoiding that imbalance requires a proactive selling approach. Regular checkups with customers to figure out which ones are leaving, which are satisfied, and which are ready to buy more, for example, can help a distributor make better future stock predictions. Inventory positions should also be tied into pricing decisions (in a real-time environment, whenever possible), in order to reduce overstocks and improve sales.

“These two strategies may appear to be one or two steps removed from the inventory challenge,” Eppele says, “but if you can keep customers in a steady state – particularly the large ones that have a material impact on your business – and not lose them, your inventory balance will improve.”

The Right Stock at the Right Time

For most distributors, the hardest part of the inventory balancing act is simply “getting your arms around the complete inventory picture,” says Richards, and knowing exactly which balance of inventory versus orders best fits your individual business model. Sometimes manufacturers will help their distributors work through these issues by providing vendor-managed inventory (VMI) or other options that help streamline stock levels and restore investment dollars.

“Spell out your inventory goals to your suppliers and then ask them for help in achieving those objectives,” Kleinman suggests. “From the manufacturer’s perspective, the manufacturer needs to understand those plans before it can make recommendations and help its distributors accomplish their inventory management goals.”

Companies that successfully conquer the inventory balancing act not only see improvements in customer service and satisfaction levels, but they also reduce the number of dollars tied up in stock – a key goal for most distributors in today’s competitive environment. “In the end, it’s not about having a lot of stock,” says Kleinman, “it’s about having the right stock at the right time.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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