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When working on projects at home, I quite often go to the shelf in my garage for materials. And quite often my projects are delayed right from the beginning. The simple reason: needed materials are missing and I need to visit my local do-it-yourself store. And most of my projects are at my wife’s request, so she is not amused at all.

In my role at SAP, I focus on wholesale distribution companies in Europe Middle East and Africa.  How do our customers avoid running out of stock to be able to serve their customers – craftsmen, retail companies or whomever? If wholesale distributors have no material availability, they are going to lose revenue and eventually lose their customers – which is not good at all!

Another challenge:  I have only a few items on my shelves.  Most of our customers have between fifty thousand and a million items. I can check the availability of my screws, anchor bolts, etc. manually. Wholesale distribution companies could never do this. Everyone recognizes how important it is for distributors to have the right replenishment tool. It needs to perform at a high level to process the huge number of items, to have the right algorithms for different types of merchandise and to work reliably each and every day for years.

So how do wholesale distributors address this problem? They implement a forecasting and replenishment tool.

First, they need to know their stock situation. A non-harmonized system landscape with many sub-systems can cause trouble: interfaces do not always work properly and there is a risk, that stock situation is not up to date, which can lead to wrong order proposals. From my experience, a lot of  distributors are
already struggling with this point. A fully integrated system is optimal.

Second, distributors need to predict what items will be needed to fill sales orders. A good forecasting tool allows distributors to review the complete sales history, including  what has been sold in the past, and to identify a trend, a season or a seasonaltrend. With this information, the distributor can predict the future need.

 

Finally, a software solution needs to compare the current stock situation including existing purchase orders to sales orders that have not yet been fulfilled including the forecasted consumption. The gap between what is or will be available and the items that will be needed to fulfill orders can then be ordered from the supplier.

This sounds very easy, but anyone who has implemented a forecasting and replenishment tool knows that the algorithms can be complicated. A lot of fine tuning needs to be done to be sure everything works accurately.

In the future, I’m  sure I won’t invest too much time on having 100% availability of screws for my home projects. Also in the future, I’m sure my wife will not always be amused. But it is important for wholesale distributors to invest the time and money needed to insure enough merchandise is available so that they lose neither revenue nor customers.

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4 Comments

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  1. Mike Wise

    Florian, I feel your pain, every project I attempt involves at least two or three trips to Home Depot.  While this is frustrating to me, distributors can not afford to run thier businesses by either over stocking ther warehouses to ensure they have material to cover orders, or using expedited purchase orders (the equivalent of running to the store) to cover sales orders.  Distributors must effectively plan and forecast.

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  2. Karen Lynch

    Interestingly enough, I typically have the opposite problem.  I overstock.  When a product goes on sale, I’ll stock up with very good intentions.  When it finally comes time to use all the product I purchased, I often find that it is expired.   So, into the trash it goes, another trip to the store is made, and replacement product is purchased.  The moral of the story is this:  Too much inventory is just as problematic as too little inventory.

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  3. Frank MARGUIER

    Hi Florian,

    In my stock I have also the funny things that are useless and will might serve, it takes me 10 years before I admit I need to throw them away. i would like sometime to have also the capacity like the store to write off and make room in my garage.

    But if they still have that write off , it is because forecasting and planning were not good, whereas in my garage it is because my wife doesnt want it any more…

    Also, when going the tool store, sometime you might be responded. Sorry we donot have it, but  we ordered it and we should have it today, but….

    the purchase order is late….

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  4. Timothy Schroeder

    Obsolete items are a ongoing problem in my workshop.  Wood is not such a problem because I can use scraps for new projects or use it for kindling in my fireplace.  But I have a lot of screws and bolts saved that I hope to use sometime.  However, it seems this rarely works out in practice.  So I need to occasionally remove obsolete items.  Wholesale distributors also have this issue as their suppliers are always introducing new items.  Its a good thing that they have planning systems with these capabilities to identify and redeploy these items.

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