An increased replenishment frequency allows the inventory level to be moved down with safety. Increasing replenishment frequency cuts inventories; it also enables a faster reaction when market conditions are changing, providing a higher service level in hardly predictable conditions. On the other hand, some say the additional costs for processing orders and receipts is the downside of an increase in replenishment frequency. So, to increase the replenishment frequency or not to increase? To increase the replenishment frequency or not to increase? This blog will try to describe possible calculation scenarios that could help you evaluate your next steps in managing your inventory efficiently.
“The higher – the better” might seem an obvious answer. A higher inventory turnover ratio (ITR) means that less inventory is required to support sales, therefore less warehouse space and capital are needed, which leads in turn to higher ROI and an increased bottom line.
But how to do that? In order to decrease inventory safely, a distribution company must know the main factors that restrict the ITR from infinite increase. Read about the factors in this blog article.
Imagine a physician in the hospital, who is trying to optimize his working time and therefore visits his patients only when the average body temperature of all patients together he has exceeds 36.6°C (97.9°F). But this would not be right, if some patients have fever while others are dead… the average temperature could also be 36.6°C!
So why are the averages in the inventory management used to analyze historical sales/consumption data in order to forecast future demand? This blog article will explain why it is better to stick to the peaks rather than the averages.