Everything we do is meant to reduce stress. Stress is caused by being out of stock, having
embarrassingly excess inventory, discounting profits to move unwanted goods and working overtime to
move imbalanced goods between locations.
It has happened at every company. Management yells, "Get the fill rate up!" The buyers
work hard and get the best service level in the history of the company. Then the cry goes out,
"Get the inventory down! We've got so much inventory the bank is going to lower our credit rating. But
keep the fill rate up." The buyers run some discount bulletins and don't chase vendor discounts.
Finally the buyers hear, "You screwed up the gross profit!" Finally, they turn to just in time
inventory management bringing items in just before needed. However, by this time the
Operations Manager is hearing, "Freight and handling costs are out of control!"
That is why the Goals of Resource Planning are to:
Increase Fill Rate
Turn the inventory
Improve the gross profit
Reduce freight and operating costs
II. The Strategy
With millions of items, no one can look at every buying decision. The buyers are busy with
details that cannot be automated like selecting items, negotiating prices, planning co-op funds,
and creating sell-through displays.
The Rules for the Ideal Buying System:
Review every item every day.
Reduce the number of orders we send to the vendor or factory.
Reduce the number of times the warehouse handles an item.
Buy at the best price.
III. The Concepts
We created a formula that dynamically decides the ideal replenishment frequency for every supplier. The result
is an average 17% reduction in inventory and an average 17% reduction in freight and handling cost.
The system reviews every item every day. It calculates the total purchase from the supplier .... $, pounds, pallets,
cubes. If it meets the restriction, it buys. If it does not meet the restriction, it looks at the lost fill rate for
this vendor over the lead time plus 1 more week. Like a see/saw it weighs how much inventory it would have to add
to the order to make the restriction versus how much service level it would lose if it waited until tomorrow. It
creates buys and passed-buys. Everyday.
It is more powerful than any procurement system in existence.
IV. The Tools
This has led to the creation of some delightful automated tools that:
Review every item every day to reduce freight, work and inventory while increasing fill
rate and gross margin.
Order considering vendor joint replenishment minimums on mixes of goods such as truck
loads and container loads.
Select the best price/minimum item purchase to maximize gross margin return on inventory.
Avoid buying items that have excesses in another location by moving items between locations.
Use forecast and existing customer orders for each week of the future.
Calculate safety time and replenishment frequency to maximize fill rate and profitability.
Allow infinite level bill of material and component planning.
Allocate scarce inventory to warehouse or store locations.
We have installed trial systems as far away as South Africa. These systems use your company data. They
are fully functional. They cost nothing until you are satisfied that the software is doing the job.
