Just as today s purchasing people need a thorough working knowledge of inventory-related system functions, other users whose actions have an effect on the level of inventory must know both how their specific functions can influence inventory management and how other system functions can affect their own. Some systems have formulas and rules that can t handle the erratic, complicated buying patterns of today s customers. They may not react fast enough to changing conditions or may provide imprecise calculations. Other systems use rules and formulas that are too simplistic, a weakness likely to be found in generic distribution systems, as opposed to those systems designed specifically for hard-goods distributors. While replacing an old system is one option, changing some of the present system s rules and formulas is usually the most cost-effective way to improve inventory management.
Safety stock can account for too large a portion of the quantity on hand.
After all, safety stock is kept in case sales exceed forecasted demand. Lead time frequently is calculated even less accurately than safety stock. Lead times should be based on more than just averages of several prior purchases. Even focusing on recent purchases isn t accurate enough. Distributors that have some form of central warehouse but also allow branches to buy direct actually have two lead times, which can be very different.