We in procurement always claim that the forecasts are always wrong. And always we try to create the buffer in order to secure the unexpected sales. But is the safety stock the only way to secure peak periods?
In this article we will talk about three ways to secure the full supply for the peak periods.
Obviously the safest way to secure the unexpected sales growth is to create the extra stock at your warehouses, at your stores (or wherever you keep the goods before sales). But at the same time we all understand that this is the most expensive way. This means that we should pay purchase price for the goods, all the logistic cost, we should freeze the working capital (which involves some interest rate as well). Moreover, stock possibilities at our own premises can become an issue.
So what are the alternative ways to secure the availability of goods in the peak periods? In this article we will go through three of them.
1. Keeping the buffer capacity at suppliers
Keeping the buffer capacity at our suppliers is not for free. And most likely the purchase price for your goods will be affected by securing the buffer capacity. In this case you should also remember about the lead time from supplier to the sales place.
But still for many supply chains this may be a very cost effective set-up.
2. Keeping the stock at suppliers:
Keeping the extra stock at suppliers is also a very widely used method. You can agree a specific extra safety stock level to be kept at your supplier for you.
This extra stock can be agreed in number of pieces /or pallets/ or trucks, and also in number of days/ or weeks/ or months.
Depending on production lead times, and capacities at your suppliers you can agree to keep the extra stock in following forms:
a. In the form of readymade products (less risky, but expensive)
b. Semi-finished products (medium solution)
c. Components (risky, but the cheap option).
3. Just-In-Time deliveries
The most advanced way for the companies to manage their stocks (inventory) is Just-In-Time (JIT) deliveries from their suppliers. Such type of corporation can be a standard for some Industries (like car manufacturing, or electronics), but for most of industries it is still a huge task and a big dream to come to the level of JIT cooperation with the key suppliers. And of course JIT deliveries require the same efforts and the responsibility from both supplier (to fulfill the orders with hundred percent precision) and a customer (to provide the most accurate forecasts).