Have you ever found it difficult to identify the overstock inventory in your warehouse? If you have then you are not alone. Many do not even realize the importance of overstock and how much it costs their company on a daily basis.
Overstock analysis is an important consideration when it comes to inventory management. To optimize your inventory, you must have a strategy to identify your products that are overstocked.
This document will help you understand the K3S strategy for identifying overstock.
It is important to define the difference between Cycle Stock, Safety Stock, and Overstock. Cycle Stock represents the amount of inventory that will cover the product’s lead time (delivery time) and order cycle (order frequency). Safety Stock is the amount of extra stock needed to account for demand uncertainty. Overstock, in its simplest terms, is considered a product’s inventory when levels exceed Cycle Stock + Safety Stock.
If an overstock classification considered everything above Cycle Stock + Safety Stock to be Overstock, the system would contain too much noise to be useful for overstock classification. The K3S Overstock Analysis approach filters the products that truly need your attention. This is done by setting specific thresholds that products must reach to be considered overstock.
Double Safety Stock Threshold
It is important to set a reasonable benchmark when identifying overstock so that products are not susceptible to be miscategorized. K3S uses the Double Safety Stock Threshold to reduce noise and create higher quality categorizations. This is the process of taking the cycle stock quantity plus twice the safety stock quantity to set our first threshold for overstock.
Considering Buy Multiples
The next threshold to consider are products with a large Buy Multiple. This threshold is important because if a product has a large buy multiple that exceeds the double safety stock threshold, your on-hand balance would always look overstocked everytime you place and receive an order. This occurrence is common among slower moving products.
The third consideration is seasonal products. Seasonality represents products that will consistently sell more at different times of the year and less at other times giving them “seasons”. The products that have a seasonal profile will bring desired increases in inventory levels when approaching a season.
Forward Buying represents investing more in inventory when there are promotions from suppliers or known future price allocations are approaching. Increasing inventory levels for a lower price can lead to profits later that outweighs the carrying cost associated with having extra product.
• Time (90 days over maximum level)
• Dollars (Carry Cost is over $100)
• User maintainable
Visit the Overstock Analysis Report to learn how to run the report in K3S.
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