Some industries, like ours (electrical and related), thrive by meeting end customer needs; having the right quantity of the right parts in stock so we can fill those customer needs when they occur. Some industries, like retail or grocery, just focus on not having an empty shelf.
Does availability help us understand our performance against end customer requirements?
Is availability aligned with our business goals?
This paper explores the gap between availability and end customer fill metrics, and the impacts on the business
Availability metrics are included in most ERP and basic replenishment systems. On the assumption that we measure every planned part, availability does tell us how we are doing against that goal: If a stocked part has an available quantity greater than zero, it’s available. From there, we can calculate percentages, averages, trends, etc.
However, availability does not help us understand our performance against the business goal of fulfilling end customer needs.
Sometimes taking examples to an extreme and simplified case can best illustrate the impact of different approaches.
Let’s say that the plan at Avail-Co is to have 100% availability; always having a greater than zero inventory availability position on the shelf for each planned item.
Fill-Co has a different plan; Availability is viewed as important, however the business focus is on achieving differentiated end customer fill levels.
Purchasing organization Avail-Co might accomplish their goal with a replenishment platform planning for 2 of every item on the shelf at all times, sell 1 and replenish 1. Perhaps Avail-Co achieves 100% availability, or at least some very high rate.
Purchasing organization Fill-Co might use SCO (Supply Channel Optimization) to automatically plan to have a quantity for each item based on filling probable end customer demands. Fill-Co might even use SCO’s recommendations to not stock some ‘planned’ items, freeing up cash to invest in a larger quantity of those items that are more likely to have larger or more frequent demand.
Avail-Co wins on availability, but what happens at Fill-Co?
With their plan Avail-Co could, again in the extreme, achieve a zero (!) end customer fill rate, and with it, potentially zero end customer sales: end customers want the quantity they need for their project, not just the quantity of 1 that it takes to make an item ‘available’.
In our industry, Team Fill-Co wins with higher end customer fill driving higher end customer sales – even though Fill-Co can’t match Avail-Co performance on the availability metric!
Pan-Pro has both end customer fill and availability metrics at executive and detailed operational levels, both point in time and trend. And with Pan-Pro’s advanced probability, forecast and economic analysis incorporated into the SCO program, distributors typically find that up to 100% end customer fill can be achieved with much less than 100% availability. Conversely, we also find that had the inventory availability result been higher, even if availability was 100%, end customer fill would be the same or so minimally impacted as to be a non-issue. And for large OEM and project business, Pan-Pro’s unique Project Fulfillment Optimizer brings distributors even closer to 100% end customer fill with dramatic (up to 67%) reductions in inventory.
Of course, SCO can automatically maintain a stock position of 1 (or ‘n’) for items that are not yet selling, and then automatically adjust the position up as end customer demand is generated. Initially availability won’t be 100%, but end customer fill will be higher.
SCO meets our industry’s needs, including the ability to automatically drive higher end customer fill for all items, while supporting a stocking level of 1 (or ‘n’) for those items that the distributor must stock to be competitive in the market, even if they experience infrequent demands and low or no sales.
SCO distributors can simply communicate inventory, end customer fill and availability goals at macro or more detailed levels, and the system will begin pursuing those new goals the next day. And with SAVVYTM, performance achievements regarding end customer fill, availability, and additional metrics, are available in dashboards anytime, anywhere, at any level of detail.
With SCO, cash can be freed to invest in growing market share by stocking a wider selection in existing SCO lines, by adding additional lines from SCO manufacturers, and by capitalizing on the benefits of a SCO relationship to sell more together.
Pan-Pro understands that ‘what gets measured gets done’. We also understand the rule ‘be careful what you measure’. Pan-Pro provides the most complete, thorough, thoughtful and unbiased analysis and metrics regarding sales and inventory asset performance of any replenishment system, automatically.
Pan-Pro (www.pan-pro.com) is a trusted partner in providing innovative integrated business solutions targeted to grow your business and reduce costs.