Inventory distribution
Distribution of the inventory in the retail trade and distribution has the direct influence on a company’s profit. We would like to provide the real-world example here how an inefficient distribution of inventory brought losses to the company. And how optimization of the inventory distribution processes from the suppliers and inside the trading chain improved the company’s economy.
The more extensively the company is growing, the easier it is to miss a moment, when managing the stock becomes chaotic:
- Stores are opened in different cities and regions, and stocks are distributed according to the old logic: «we deliver to any place from any warehouse»;
- Moving the goods between warehouses/distribution centers and stores costs more and more, but there is no time to put things in order, as everyone is busy with the development of the chain.
- There is a constant shortage of one kind of goods and surpluses of others. No one estimates the cost of lost sales and frozen funds in the reserves.
How it was in the company:
Distribution of the inventory in a certain wholesale and retail company looked as follows: goods were delivered to the regional wholesale warehouses by foreign suppliers from the entrance warehouses, as well as directly by the internal suppliers. The goods were therefrom delivered to retail warehouses, stores, and showrooms, regardless of the warehouse remoteness and delivery place. Simply said, any warehouse delivered the goods to another store or warehouse. Inventory in the keeping units was supplied based on the sales forecast, i.e. according to the «push» model: a product is delivered to the keeping unit as planned, and not as required.
Consequences:
The company was constantly confronted at sales points either with shortages or with surpluses. The costs of moving between the storage points went off scale: goods were transported from the remote warehouses or from several warehouses at once; no one estimated the costs of cross-transportation. The illogical distribution of stocks led to considerable costs in logistics.
During the project, the scheme of stock distribution was rebuilt and the «pull» principle was implemented:
- The entrance warehouse distributes the goods between the regional wholesale warehouses.
- The regional warehouse serves only the retail warehouses of its own region according to their requests.
- Retail warehouses serve stores and exhibition centers only in their region.
- Sales points are placing the orders for retail warehouses, focusing on actual demand.
The methodology of Inventory and the program product ABM Inventory were implemented using the «pull» principle. For more details about the «pull» principle, please read here.
Results of the inventory distribution optimization:
- competent distribution of commodity stocks allowed a significant (by 30%) decrease in cross-transportation and logistics costs;
- the time of stock replenishment has decreased, the level of availability has increased, and the lost sales have fallen;
- stocks are replenished as and when the goods are sold; surpluses and losses from damage have decreased;
- processes have become transparent and easily manageable;
- key indicators of managing the inventory distribution are monitored online in the ABM Inventory system.
