You may not know it but today’s distributor owes a great deal to Gordon Graham. The Graham method of inventory management has become the standard by which all other inventory management methods are judged. The reason Graham methodology is so popular is simple it works. In this article we’ll review the basics of Graham methodology. Gordon formalized the use of EOQ, Economic Order Quantity. In the next weeks will will use his and others advanced concepts to create simplified tools for your use. 
In the 1980s Gordon Graham "The Dean of Distribution" introduced the idea of managing inventory by focusing on two main factors the reduction of stock outs and the second being the overall reduction in inventory investment. In 1993 Charles J. Bodenstab built on the foundation Gordon laid updating his ideas and giving insight into the techniques technology available at that time in his book "A New Era in Inventory Management." Over the next few weeks we're going to break down the core concepts these pioneers in Inventory Management put forward into actionable techniques as they apply to the food industry.
"With effective management and planning you can downsize your inventory by 20%, improve your order fill rate, and free up working capital." -Charles J Bodenstab
So let's do a run up and get up to speed:
Gordon gave us insight into when to purchase and what to purchase based on the EOQ (Economic Order Quantity). But accurately calculating EOQ for food distribution can be very demanding. EOQ is on an item by item basis (so all those SKUs you carry make it hard) and relies on getting accurate data gathered in a timely fashion.
Charles refined this and gave solid guidance towards automating these calculations using computerized systems. We looked at an example of a system built to handle these food item re-ordering calculations back in Issue 85 and Issue 86. But let's look at one of the first tips Charles provides, something you can do right now to improve your inventory even without a full purchasing system
The Authorized Stock List:
- Have a definite, published, formal list of the products you routinely inventory.
- Have a rigorous, structured program for adding and deleting items.
- Be consistent in your rationale for stocking items.
This is an excellent first step and one that can as a stand alone bring additional order to your inventory. An authorized stock list is essential in making sure that every item in your warehouse is being managed to make the most of your inventory investment. Items not on the list should not be in your warehouse creating overhead. Items on the list are items that you have committed to stocking for your customers.
Take a look at our earlier article "Do You Really Need to Sell That?" for some tips on what to watch for in your warehouse. Remember, the key here is to be consistent and stick to your policies. Take a look at your stocked items, are there any slow movers in the mix that are only there to satisfy one or two customers?
"One argument that develops in this area of stocking covers the "alleged" need to keep a lot of slow-moving product on hand because the customer expects it, and won't buy the popular stuff from you unless you can also supply the slow-moving items. There is some truth to this point, but generally the concept is used to justify stocking far more items than are warranted."- Charles J Bodenstab
Charles suggests using the sales history of an item (rather than trying to capture potential demand information) as the guiding point for your decisions. So you will need to accurately capture your sales data and be able to access it quickly, an example of sales data reporting is shown here. This will help you decide which items are on your existing stock list that should be trimmed.
"Adding items is a bit trickier...we handled the issue of adding items in a subjective way. We had a form that anyone could use...it was reviewed and approved by the product manager; then the item was formally added to the list...Incidentally, not every item approved and added turns out to be a winner...If you are rigorous in pulling items when they do not pan out, and if you do not stock large quantities immediately, then this is not a particularly painful process."- Charles J Bodenstab
We'll look further into Inventory Management techniques next week and we invite your comments and questions. (To leave a comment, select "Add a comment" at the bottom of the article.)
| < Prev | Next > |
|---|
