Despite keeping a buffer stock, "stock-outs" may occur. Stock-outs are defined as stock of one or more items being fully depleted. Stock-outs occur when anticipated orders are long-overdue, when actual lead times are longer than expected lead times, or when consumption is significantly increased. To prevent stock-outs from occurring, a safety stock should be maintained. “Safety Stock” is a quantity of extra stock that is kept to mitigate risk of stock-outs caused by uncertainties in supply and demand. Access constraints due to insecurity or Common examples uncertainties in relief operations might include access constraints, harsh climate events, or increased needs due to amplified vulnerability or to increased population in need, are common examples of context uncertainties in relief operationschanging social conditions. Awareness changing situations and the associated potential supply chain bottlenecks can help planners design a safety stock appropriate to the operational context.
Once buffer stock and safety stock levels are defined, a “reorder level” should be established. Reorder level (or Re-Order Point - ROP) is the minimum stock level of any given item before another order is placed. Reorder levels must be sufficient sufficiently high to allow regular replenishment of stock before reaching a critical situation and a potential stock out. The reorder level is calculated by adding the safety stock to the buffer stock.
When defining reorder levels, agencies should consider that storage facilities have a limited capacity. Planners should define the maximum space available for each of the stored items and establish a maximum stock level for each item. This is especially critical when storing items requiring specific storage conditions, such as temperature sensitive goods or dangerous materials, for which allocating extra space may not be immediately available. To allow a certain degree of manoeuvrability, the “maximum stock” level should not be reached.
A correct Correct inventory management requires a broader vision than just inbound and outbound movements. Understanding different ways to visually manage inventory is important in supply chains with long transport periods, limited storage capacity, or high rotation of items or where different orders overlap in time.
From the moment an item is ordered until the moment the item is received and dispatched, the item passes through different states:
- On hand/Running inventory is the Inventory - The current stock in the storage facility. It is the number of available units of a certain SKU for running operations.
- In transit inventory is the Inventory - The stock being transported between two locations. Although not in a warehouse, these supplies in transit remain property of the organisation and should be recorded/accounted. It is common for senders to deduct an item from inventory controls before the receiver accepts it. In transit tracking is particularly important when transit between facilities or to a delivery location may take long periods.
- Committed inventory is the stock - Stock that is committed to a particular order or transfer. While “On Hand” “on hand” inventory is the number of available units, “committed” inventory are items which are physically in the warehouse but are not technically available.
- Ordered inventory is the stock Inventory - Stock that has been ordered to replenish the inventory but was is not yet received. If an order is partially received, the remaining quantity (pending to be received) is called back-order.In case that there is not enough inventory to cope with a request, it is referred to as inventory back-order. If If inventory back-orders are a frequent occurrence, it may be necessary to evaluate the inventory control procedures.
"Demand forecasting" aims at predicting the is the process of attempting to predict future demand as accurately as possible using available data. Demand forecasting can be a simple task, but it becomes more complex when managing many different products and/or when multiple customers with differing demand cycles place orders concurrently.
A good forecast can be achieved by reviewing historical orders and consumption patterns. Consumption data is normally arranged in discrete time slots. Different time slots can be used depending on the frequency of outbound movements from the inventory: years, quarters, months, weeks, days. Though the time period granularity has to be defined according the context, “monthly consumption” is the most commonly used. A monthly consumption is is the quantity of a particular item leaving the warehouse per month.