INVENTORY MANAGEMENT AND PURCHASING

I’ve met hundreds of buyers and inventory managers.  I always ask, and no one has ever told me that as a child, growing up, they wanted to become a buyer for a wholesale distributor.  Nor have many told me they spent a big part of their formal education studying statistics, logistics, forecasting, negotiating skills, and other key topics to train themselves to be a buyer or inventory manager.

Some people choose to become buyers or inventory managers, but most arrive at the job of managing inventory not by their own choice.  Most learn the skills “on the job”.  Usually, that means practicing with someone else’s money.  In my case, as a business owner, it meant practicing with my own money.  The mistakes of buying too much are still in inventory and visible to all.  It is harder to see the impact of the mistakes of not buying enough, and giving poor service.

This book is organized from the ground up.  All the basic building blocks are discussed first.  You’ll have to read a lot to get to replenishment purchasing, but that’s the way your system should operate.  

It is essential to get all the underlying data right first.  If you do that, then a well-designed system can largely take care of itself.  Buyers will seldom have to change an item on a suggested order if the underlying data has already been entered and validated.  If they do decide to change a suggested order quantity, it means they need to update the underlying data, too.  

If you have embedded approved seasonality information into your item or category forecasts, then the system will ramp inventory up going in to the season, and ramp it down near the end of the season. 

If you have to order $2,000 from a vendor to get prepaid freight, your system shouldn’t even suggest an order until you need that amount, or until the projected lost sales of not ordering now offset the added freight expense of a small fill-in order. 

If you have a service level goal (and you should), then that should establish your safety stocks.  The system can only drive your inventory and service levels toward your goals if these goals are recorded, implemented, and monitored at the item level.  Otherwise, you have to “steer” the system continuously.  You probably won’t get the best results, and only luck will bring you close to your goal.

This book covers all these topics and more.

Buyers who do not have all these tools usually need yellow sticky notes to remind them lots of details.  Buyers who do not have all the right software tools usually have LOTS of yellow sticky notes stuck everywhere in their office, to remind them of all the things their software won’t do on its own.  They need notes about the start and end of every season for every seasonal line, and a thousand other details.  It’s an easy way to tell how good an inventory system is.  No sticky notes in the buyer’s office means the data is already recorded in the system, and the buyer doesn’t have to try to remember it.

If you’re an inventory manager or buyer, and you need lots of sticky notes (or “jogs” in your Outlook files, or notes in your calendar, or any other system except posting all the data to your inventory data base), then your system may not give you the right tools for optimum inventory management.

The techniques discussed in this book apply to the inventory management of a wide range of hard goods. 

However, these techniques will not help manage fashion items of any kind.  All of the techniques presume that there is demand history for an item, and that history can be used to forecast the near future demand for that item.  Fashion items do not fit this model.  Other forecasting techniques must be used to estimate demand for things like the latest CDs and DVDs, seasonal apparel, best-seller books, and other items that have a total life cycle of a few weeks or months. 

Certainly some items in these categories become regular sellers over a longer period of time, and then the techniques in this book could be applied to them.

So, the critical measure is the overall life cycle of an item.  The techniques in this book will not help manage items that go from introduction to obsolete in a span of weeks or months, but they are very valuable for items that sell for an extended period of time.

Most replacement auto parts and many other hard goods have a life cycle of years or decades.  For these items, forecasting based on demand history works well, and all the techniques in this book will have value. 

The book has formulas and examples to cover merchandise selection for distribution centers and stores, several forecasting models, safety stocks, order intervals, computing suggested orders, promotions, forward buys, stock adjustments, and supply chain considerations.

If you have an interest in inventory management, you need this book--