Issue link: https://www.e-digitaleditions.com/i/602622
40 FEDA News & Views 40 FEDA News & Views Acknowledgements I would like to conclude this letter by acknowledging the efforts of all involved in the process that led to a success- ful resolution. I'm thankful for the efforts of our members, board and Excom. Our allied industry associations and buying groups stepped up and showed their true colors as partners every step of the way. Patti Morrow (IDPC) was a formidable competitor, claiming victory every time she walked into the ring. I'd also like to commend the International Interior Design Association (IIDA) for their willingness to forge a positive path moving forward, and individually recognize Joe Schmitt, our next president, for his part in the negotiations. Joe was the lead person in discussions with the IIDA, which led to this resolution. This is just a small taste of the great things he will accomplish when he takes the reins of office next year. Lastly, I want to thank each of you as individuals. I've spoken with many of you personally about this issue and you've always stood up and taken action to support the cause. Your dedica- tion to our industry is unparalleled and I'm proud to lead an organization filled with so many great people. In the true spirit of collaboration, it's time to bury the hatchet as we all work together toward a bright and prosper- ous future! BEST PRACTICES in Inventory Management Featuring Jon Schreibfeder, jons@effectiveinventory.com human intervention is only required to identify the SKUs that add a second or third component from Exhibit 1. Believing that the items are truly blind is a much more seri- ous issue. Inevitably, one customer will complain about the price of one random SKU. At this point, the entire margin- enhancement process lives or dies. Price complaints come with the territory for any distri- bution organization. Complaints on A items can be fatal. Complaints on blind items can be overcome with commit- ment and discipline. Moving Forward Gross margin pressures are not going to go away. The chal- lenge—and opportunity—for distributors is to remain price- competitive where necessary while raising prices where pos- sible. Blind items are the key to that approach. About the Author Dr. Albert D. Bates is founder and president of Profit Planning Group. His recent book, Breaking Down the Profit Barriers in Distribution, is the basis for this report and is available in paper format from Amazon and Barnes & Noble. Money Matters continued President's Message continued "Planning Isn't Perfect" A lot of software packages advise buyers to purchase enough stock so that the product demand is met during the "replenishment horizon." The replen- ishment horizon is equal to the sum of demand during anticipated lead time, demand during the upcoming order cycle and safety stock. The anticipated lead time is the amount of time you predict it will take to acquire the product from your supplier. The order cycle represents how often you place replenishment orders with the vendor. Safety stock is insurance inventory, protecting you from stock outs due to unusual usage or delays in receiving a replenishment ship- ment from the supplier. For example, let's say an item has a forecast of 60 pieces per month (i.e., two pieces per day), a lead time of 10 days, an order cycle of seven days and safety stock of four day's usage. To cover your needs during the replenishment cycle, you would need a total of 42 pieces: Lead Time Usage (20 pieces) + Order Cycle Usage (14 pieces) + Safety Stock (8 pieces) This method works well if you consistently sell two pieces per day throughout the month. But what if you sell the entire month's forecast quantity of 60 pieces in one transaction? Even with safety stock, you probably will not have enough inventory on hand to fulfill this request, despite the fact that actual usage was equal to the demand forecast. A "best practice" replenishment system must ensure that you can fulfill your customers' needs even when demand is not level or consistent. How can you do this? Consider adding a feature to your system to ensure that calculated safety-stock quanti- ties are not less than a typical customer order quantity. You can calculate the typical order by dividing the total usage recorded over the previous 12 months by the number of customer orders received over the same time period. For example, if you sold a total of 360 pieces of an item during the past 12 months in six transactions, the typi- cal order quantity would be 60 pieces. For items that are critical to customer service, you might consider raising the mini- mum safety stock quantity to two times the typical order quantity. It would be wonderful if there were perfect consistency in the way customers ordered products. Unfortunately we have to overcome erratic or "lumpy" demand in our quest to achieve effective inventory management. About the Author Jon Schreibfeder is president of Effective Inventory Management, Inc., a firm dedi- cated to helping manufacturers, distributors, and large retailers get the most out of their investment in stock inventory. He is the author of numerous blog entries and a series of books on effective inventory management, including the recently published Achieving Effective Inventory Management (5th edition) and the National Association of Wholesale Distributors' Guess Right – Best Practices in Demand Forecasting for Distributors. To reach him, call 972-304-3325.