In inventory management, insufficient inventory will lead to out of stock, which will affect performance growth and service timeliness, and lead to customer complaints and even loss. Similarly, excess inventory will lead to overstock, increase inventory costs and reduce the profits of parts business.
Low inventory can not meet the needs of customers, but high inventory will bring risks to the enterprise. The high inventory and shortage caused by blindly increasing inventory is a disaster. Not only customers are dissatisfied, but the enterprise also suffers heavy losses.
A very important performance indicator in inventory management is the spot rate of accessories, also known as service level, that is, when customers need n kinds of accessories, the enterprise can immediately provide the spot rate. The higher the spot rate of parts, the higher the customer satisfaction. However, it is impossible for an enterprise to meet 100% of customer needs, which will be very expensive and unbearable. Therefore, an appropriate target of spot rate must be set for spare parts inventory.
What is the appropriate spot rate for accessories? Is there an optimal spot rate for each part? The answer is yes. There is a law in Economics: the best value occurs when the marginal benefit approaches the marginal cost, and similar situations can be found everywhere in practical work.
The marginal benefit can be obtained when the inventory is sold, and the marginal cost will be generated when the inventory is not sold. The marginal cost can also be evaluated according to the inventory holding cost, and the marginal benefit can be calculated according to the gross profit of sales. The inventory turnover rate amplifies the marginal benefit of accessories. By comparing marginal benefit, marginal cost and inventory turnover, we can calculate the best value of spare parts spot rate.
The target value of the best spot rate of spare parts appears near the red curve with different inventory turnover rates. If the target of the spot rate is too high, there is a risk of excess inventory, and if it is too low, there may be out of stock. The work of spare parts inventory planning is to find the target of the best spot rate of each kind of spare parts according to the inventory data, so as to achieve the best balance between customer demand and enterprise return.
What kind of accessories should an enterprise store? Some enterprises only store common accessories, because such accessories are in great demand, have fast turnover, and have no sluggish risk; In this way, the infrequently used repair parts will be out of stock, causing customer dissatisfaction. If customers go to other places to look for accessories and find that the price is better, the enterprise may lose these customers forever. Therefore, the spare parts in stock need to be fast and slow.
The same is true for parts procurement. Some enterprises limit the inventory scale to reduce the inventory holding cost. This requires frequent urgent orders, and each order requires the payment of ordering cost, labor cost and transportation cost. The probability of out of stock will also increase, and batch discounts will not be available.
It can order parts in large quantities, and is prone to backlog and sluggish risks. When the order cost and holding cost are equal, the total inventory cost is the lowest, and the order quantity is called EOQ.
I am often asked whether service enterprises should pursue the spot rate of spare parts or the inventory turnover rate? Employees from different departments will also argue over this issue. The sales department and service department hope that the higher the spot rate, the better. The planning and finance department hopes to improve the inventory turnover rate. Whose opinion is right?
Enterprises must consider the spot rate of spare parts, which is related to customer satisfaction. However, if they do not take into account the inventory turnover rate, they will not be able to make profits. Where are enterprises that do not make money qualified to talk about high-quality customer service.
In practice, we often encounter this situation. The two performance indicators contradict and restrict each other. An important law in management is that the best value occurs when the two are in balance. Therefore, balance is the most important management idea of an enterprise. Pursuing a certain performance indicator at all costs will certainly affect the achievement of other indicators and ultimately hinder the realization of the overall strategic objectives of the enterprise.
Those excellent enterprises in parts management know the beauty of balance, look for the best point between the spot rate of parts and the inventory turnover rate, and maintain a balance between customer satisfaction and return on investment, which just reflects the wisdom of enterprise managers.
Today's world is increasingly uncertain. When we encounter problems, we often hear this instruction: "solve the problems at all costs!" Such instructions are usually used only at critical moments of life and death, because at any cost it means breaking the balance and sacrificing the optimal solution.
Unfortunately, some people say such things casually and never think about the consequences. It should never be a rational choice at all costs. Balance is the only way. This shows the profound significance of the golden mean proposed by our ancestors.
