Logistics FundamentalsSupply Chain

Stock Control Systems (1): The Necessity

Suppliers do not want to overproduce or underproduce their products. Overproduction would result in unsalable waste and system glut. Underproduction would lead to stockouts, disappointed customers, loss of sales, and, possibly, loss of supplier status with key retailers or other important downstream entities. Also, a supplier’s or manufacturer’s warehouse needs to keep an up-to-date log of its inventory so that in-house production orders are triggered, scheduled, or cancelled based on accurate inventory count, not on estimates. Without stock visibility, a company may be tempted to overproduce to buffer against shortage, which could create a Forrester effect, filling the system with excess that grows in volume with every upstream operation. Without stock visibility, a supplier’s own inbound logistics and materials ordering could become chaotic. They may be ordering unnecessarily and without giving their own suppliers adequate notice of demand, which means they may also find themselves operating inefficiently and erratically.

Furthermore, the companies buying their product may also want real time visibility of their suppliers inventory, and may require this as a condition of contract. If a downstream customer wants an understanding of the availability of a certain item outside their own stock, they may require supplier stock data. If the supplier is unable to provide such, it may be in breach of contract or, in competitive environments, lose out to a supplier whose inventory levels can be made visible to an outside business partner. If a customer wants to run agile or JIT inventory management, it may only have confidence in this system if it has full visibility into its suppliers inventory.

An effective stock control system will allow a supplier or manufacturer to obtain accurate, real time, constant visibility of actual stock levels. A sophisticated stock control system will also make it data portable into other systems, so that permitted outside parties, such as customer organisations, can also see the suppliers stock levels this means, that downstream partners will not be tempted to overorder, and upstream partners will be able to anticipate and therefore prepare replenishment orders, so that stockouts do not occur at supplier or buyer level.

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