We Have Too Much Inventory and Still Run Short
Total inventory looks high and shortages still happen every week. Both are true at once because stock is set item by item and the totals hide it. The overstock sits in slow movers and old buys; the shortages come from fast or variable items with too little cover.
What Is Usually Going On
- Reorder points and min/max levels were set once and never updated as demand and lead times changed.
- One rule for every item: the same weeks of cover for fast movers, slow movers and long-lead items.
- Price breaks and minimum buys leave months of stock on some items.
- Supplier lead time is longer and less reliable than the number in the system.
- Record accuracy is low, so the system shows stock that is not on the shelf.
How to Fix It
- Split the itemsRank items by usage (ABC) and by demand variation. Fast and steady, fast and variable, and slow and lumpy items each need their own rule.
- Check the lead timesFor the items that run short, compare the system lead time to actual receipts over the last several orders. Note the spread, not just the average.
- Set safety stock by itemSafety stock = z x demand variation x √lead time, with z from the service level for that class. Reorder point = demand over the lead time + safety stock.
- Set service levels by classHigh service for items that stop a line or a customer order, lower for items that can wait. One service level for everything overstocks most items.
- Work down the overstockList items by days of supply. Stop reorders on items above max, use them up, return or move them.
- Fix record accuracyCycle count the A items often. A reorder point is only as good as the on-hand number behind it.
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Common Questions
Why do we have too much and too little at the same time?
Because stock is set item by item. Totals can be high while a few items are short. Look at days of supply per item, not the total.
What service level should I use?
Set it by what a shortage stops. Items that stop a line, a customer order or a repair get a high level; items with a substitute or slack get a lower one. Stock climbs fast near the top of the range.
Demand variation or lead time variation?
Both when supplier dates move. If lead time varies a lot, it often drives more of the safety stock than demand does.
Is kanban better than reorder points?
For steady, repeat items near the point of use, kanban is simpler to run. For lumpy or long-lead items, a reorder point or a planned order usually fits better.