There has been a conflict within several suppliers regarding stock orders. Should we offer daily stock orders? Should we allow stock orders weekly or some other frequency? Let’s examine the basics.
The lead time, the replenishment of an inventory, contains in it the time that exists between stock order cycles. If the stock orders happen daily there is no time added to the lead time. If the stock orders are placed once a week then the lead time is increased by three and a half days. Your inventory would also be higher by at least three and a half days of sales depending on the level of safety stock. So your turnover on parts inventory would be higher with daily stock orders that weekly stock orders.
That would provide the dealer with a higher return on capital employed. If we use the gross profit as the foundation and assume a gross profit of 30% we can then do a calculation on the return on capital employed.
If we look at an inventory that is three and a half days higher with a weekly stock order than daily and a further day and a half of safety stock we can calculate the difference. Assume that the inventory level is on average a 60 day supply of parts at order point. The increase in inventory levels with a weekly stock order versus a daily stock would be that 8.33% of inventory at order point. That is not an insignificant increase.
Daily stock orders are not a luxury for suppliers and dealers that do not pay it is a benefit in that the capital that would otherwise sit in a parts inventory is freed for other uses. The time is now.