What is the ideal time to replenish product stock in your company?

Currently, the vast majority of companies are looking to obtain an advantage competitive compared to its competitors, and the opportunity to serve customers promptly at the time and in the desired quantity is greatly facilitated by effective inventory management.

In all companies except typical service companies, stocks represent extremely significant components, whether from critical economic, financial, or operational perspectives. In industrial or commercial companies, materials account for more than 50% of the cost of goods sold, which leads us to conclude that the financial resources allocated to inventories should be used as rationally as possible.

In this context, inventory management and control are becoming increasingly important for companies. Knowing how to optimally replenish inventory with appropriate quantities, planning the ideal date for product receipt, maximizing customer service levels, and minimizing financial impact on inventory has become a major competitive advantage for organizations.

When do I replenish product stock?

I could spend hours discussing subjective theories and theories about the ideal time to replenish stock, but when it comes to this topic we are referring to a very simple mathematical formula called the Reorder Point:

Where: PR = Resupply Point;

D = Monthly Demand;

TR = Replacement Time or lead time in months.

ES = Safety Stock.

This quantity of stock held at the reorder (or replenishment) point must be sufficient to meet the demand for the item during its replenishment time, plus a safety level, which serves to absorb variations in demand during the replenishment time.

Regarding safety stock, its purpose is to address uncertainties in the process of transformationThe reasons for using safety stocks may be uncertainties regarding the item's supply phase, the process that produces it, or its demand.

An important observation regarding the demand placed is that when the demand is variable, an average demand should be used and the same applies to the service time, when it is variable.

How much to buy to replenish stock?

At this point we are referring to the ideal quantity to replenish stock, in which case some aspects must be considered, such as:

– Storage capacity: It is very important that the quantity purchased to replenish stock is within the current storage capacity for that product, including a safety margin to absorb small advance deliveries.

– Definition of the stock level and/or coverage defined for the product: The quantity requested for stock replenishment is directly related to demand, inventory level, and coverage defined for the product. Products with high demand or strategically maintained higher inventory levels will have higher replenishment quantities.

– Consumption value of products: At this point we can use the good old Pareto through the ABC curve, that is, for products with low added value it is recommended to buy larger quantities and for products with high added value it is recommended to buy smaller quantities in order to reduce the impact on the company's working capital.

– Shipping cost (freight): The quantity of product to be replenished should also be aimed at diluting transportation costs. Replenishing very small quantities, which generate idle loads, can significantly increase logistics costs. It is recommended to aggregate as many products as possible to utilize the vehicle's maximum capacity and avoid generating high inventories of specific products.

– Opportunity purchases: at times, the quantity to be purchased may be influenced by promotions where the price of the product at a given supplier is below the market average. At this point, the manager must evaluate the quantity to be purchased in order to take advantage of the opportunity without generating major impacts on stock.

It's good practice to have a batch size policy for purchasing products to guide the company's inventory planning. At this point, the ideal average inventory level should be assessed, taking into account all the points mentioned above, as well as calculating the opportunity cost of capital tied up in inventory. The biggest challenge is to provide a high level of service to customers. customers and simultaneously maintain a minimum capital impact on inventory. Achieving this result will require the implementation of technological innovations, increased process control, and a growing understanding of customer needs.

BIBLIOGRAPHY

CORRÊA, Henrique L; GIANESI, Irineu GN; CAON, Mauro. Production planning, scheduling and control MRP II/ERP: concepts, use and implementation. 4th ed., São Paulo: Atlas, 2001.

MARTINS, Petrônio Garcia; ALT, Paulo Renato. Management of materials and heritage resources. New York: Routledge, 2000.

POZO, Hamilton. Management of material and asset resources: a logistical approach. 2nd ed., São Paulo: Atlas, 2002.

TUBINO, Dalvio Ferrari. Production planning and control manual. 2nd ed., São Paulo: Atlas, 2000.

VIANA, John Joseph. Materials management: a practical approach. 1st ed., São Paulo: Atlas, 2002.

Author: Paulo Graça – Materials Coordinator at SINOBRAS

Paulo holds a bachelor's degree in Business Administration from UVA and an MBA in Corporate Logistics from FGV. He has over 16 years of experience in inventory planning and control and has worked as a Materials Coordinator at SINOBRAS for eight years.