How an item's status is determined
It is important to understand how the status gets assigned to each item
Read the tutorial
In this tutorial I am going to explain how an item gets identified as a stock-out, potential stock-out, surplus order, or excess item.
Identify and exclude “new” items
First we identify and exclude “new” items, as there is no way to accurately determine the status that should be assigned.
Stocked items are categorised as new:
- that have stock on hand or stock on order
- for which there is no demand (yellow highlight)
- an age less than or equal to 12 (the orange circle)
- and no manual forecast overrides (no snowflake in the red circle)
The status units is calculated as stock on hand plus stock on order.
For every status, the status value is computed as the status units multiplied by average cost.
The status assigned is prioritised
After the exclusion of new items, the status assigned to remaining items is prioritised based on the impact on your business.
Priority 1: stock-outs
If an item is stocked-out, it impacts your fill rate, hurts customer service and may result in lost sales – so stock-outs are priority number one.
Stocked items are flagged as a “stock-out” when your available stock is zero or negative.
The status units is the potential lost sales over the shorter of the lead time days or the days until the first purchase order is due (the 480 in the dark green box).
Non-stocked items are flagged as a “stock-out” when your net stock is negative.
The status units is the quantity required to get your net stock back to zero.
Priority 2: potential stock-outs
Potential stock-outs are your early warning signal of future fill rate and customer service issues, giving you time to avoid a stock-out.
So, priority number two are those items that are not out of stock right now (blue circle) but are predicted to run out of stock (dark red shading) before either the next order arrives or an order you place today can be received.
The status units is the potential lost sales over the predicted stock-out period.
Priority 3: surplus orders
Priority three are those items where you have too much on order, your early warning signal of potential future excess.
To determine whether you have surplus orders, the App computes an order to be placed today, ignoring all existing purchase orders.
If what is currently on order within the lead time is more than this computed recommended order, the item is flagged as having surplus orders and the quantity is set to the difference.
Priority 4: excess
Priority four are items with excess stock, and typically you would not do much about these on a daily basis.
A monthly focus on the top 10 or 20 items with excess, along with excess reduction targets and actions is more likely.
For stocked items, the difference between available stock and the order up to level is the number of units that are in excess.
For non-stocked and obsolete items, any positive available stock is set as the excess quantity.
Any items not categorised as new, stock-out, potential stock-out, surplus orders or excess will be flagged as OK.
Items with more than one issue
It is important to note that an item may have multiple issues.
For example: this item is flagged as a potential stock-out as it is predicted to run out before the next order arrives. However, the next order is way too big and so the item could also be flagged as a surplus order item.
Each item may only ever have one status – the highest priority status based on the impact to your business. While investigating the options to avoid the potential stock-out, you would see that the order is too big and try to bring part of the order forward to avoid stocking out.
And that’s it for my tutorial on status determination
- New items are identified and excluded
- A priority based on the impact to your business is used when determining the status to assign to each item
- An item could actually have more than one issue, so look out for this when reviewing items
- Watch the “How to action my …” series of tutorials for more information on the possible actions to take for each status