Inventory Management Review: Implementing Reordering

Inventory Management Review: Implementing Reordering - Reordering and knowing when to hypothetically reorder based on ROP formulas are not the same thing.  Of course, to reorder, you should know when to do it.  

That is, you shouldn't reorder without ROP.  You should determine the ROP and order accordingly, which requires constant inventory level tracking.  My last post, Different Inventory Systems, detailed ways to track inventory levels.  

So if you track inventory levels, and know ROP, you should be good, right?  Well, not really.  You still need two things: someone to reorder and the knowledge that it's time to reorder conveyed to the person in charge of reordering.

First, let me give an example that should help demonstrate the issue at hand.  The firm that I wrote about in Notes from an Inventory Management Consulting Job did not have a perfectly smooth transition with the new system.  While it is working to their advantage very well now, there were some bumps in the road.

Primarily, there was a bump in the road of not reordering materials on time.  Now, this is a pretty big problem considering that the system was commissioned so they would know when to reorder.  People don't like spending money on a system that doesn't help them.  

Now, I don't want to say it wasn't my fault that it wasn't working, BUT, luckily it wasn't my fault and the issues have since been fixed.

You see, the system was designed so that when materials hit the safety stock level, it was time to reorder.  Despite information in the system that very clearly alerts users that it is time to reorder by saying "NOW!" in big red letters when it is time to reorder, there were still issues regarding the actual reordering.  

There was even a countdown by the system that allows users to know how many days they have left until they have to reorder.  It was quite clear.

The problem, as I discovered, wasn't so much that they didn't know when to reorder, or how much to reorder, or what their inventory levels were at so they could decide to reorder or not.  The problem was they didn't reorder.

There are two solutions to this.  First, I could have manipulated the system so that it told them to reorder a couple of weeks before they needed to.  I could have implemented a safety net into the system that would account for their inability to reorder on time.  

For some firms, this could be a viable solution.  A good example would be if there is a redesign that needs to be performed each time materials are reordered.

The second solution is to reorder the damn materials when the system tells you to.  This, although not in so many words, is what I suggested to them.  Unlike the first solution, this solution reorders when it makes economical sense.  

The other solution dumps excessive inventory into the system.  It has you reorder before you should which raises average inventory, which needlessly ties up cash into the system.

Back to what I was saying earlier, you need someone to reorder and you need that someone to know that it's time to reorder.  Here, the firm needed someone to do it.  People knew, but there wasn't someone who got the job done.

So how do I implement this?

There are many different ways to implement this.  While I won't go into detail regarding building a system, I will give the basic requirements on managing the implementation.

Most importantly, knowledge needs to be conveyed.  When your inventory tracking system recognizes that levels have reached the ROP, this information needs to be made available to people that can do something about it.  

I'm not saying sirens need to go off, but something needs to occur that results in a materials orderer discovering that he has an order to place.

As I discussed earlier, someone needs to have the job of actually reordering.  I see it too often that people don't reorder when they know they should.  

Don't let this be you.  Don't be the manager who invests money into a system but doesn't invest time into ensuring his employees are properly using it.

Before I conclude, I will mention that this entire process can be automated.  EDI, or electronic data interchange, used alongside RFID can accomplish such.  

RFID is used to track inventory and when the levels drop below safety stock levels, EDI automatically places orders with suppliers.  Wal-Mart is a great success story regarding these two technologies.

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