Prioritizing Safety Stock And Other Inventory

In a perfect world, a distributor would fill every order on time, but that’s nearly impossible. Shipping issues, last minute changes to orders by the client, human error on either end — not every request is going to be met. Instead experts say distributors want to generally hit on a certain amount of overall orders, while staying nearly perfect on a customer’s big-ticket items.

“I don’t look at line fill, I don’t look at case fill,” says Keith Attman, vice president of supply chain at Acme Paper and Supply, Savage, Maryland. “At the end of the day, you either filled an order completely or you didn’t.”

But since filling 100 percent of all orders is unreasonable, Attman likes to grade the importance of stocking on an A-E scale, with an “A” grade being that “big ticket item” distributors want to excel at delivering, and “D” and “E” items being those that they not only can’t always hit on, but can’t afford to hold onto for long.

Both Attman and Jason Bader of The Distributor Team, Portland, Oregon, say distributors should shoot to fill 90 to 95 percent of orders completely —there’s a reason for this. If a distributor fills 98 percent of orders, too much of its return on investment is compromised because money is tied up and sometimes the distributor might have to eat the cost.

“The longer something sits on a shelf, the more likely something bad happens,” says Bader.

Instead, distributors should place a percentage goal by the item’s letter grade. The A and B items should be filled at 100 percent or just below because these are more popular, high-transaction items, meaning they won’t take up space for long.

“(These items) are probably less than 10 percent of your inventory, but if you nail that 100 percent, people think you’re a rockstar,” says Bader.

Distributors would be wise to build up a “safety stock” of these most critical products, says Schreibfeder. This preparation not only allows them to stay on top of the A to B items, but also protects against an unusual order placed by a customer.  

Though safety is subjective because each distributor is different, a broad way of calculating how much is needed would be to base safety stock on a multiple of the average deviation between the forecast and actual usage over the previous several months in those months where actual usage exceeded the forecast, says Schreibfeder.