Is it Possible To Eradicate Stock Outs?
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There have been significant developments made to supply chains over the last 10 or 20 years. Gone are the days when the supplier was (metaphorically at least) beaten with a stick in order to provide supplies at the lowest possible cost. Now the emphasis is on building strong relationships with suppliers, ensuring that the relationships are effective and mutually beneficial. So does this mean that there are now no obstacles to the supply chain; indeed can stock outs now be considered a thing of the past?
Risks To The Supply Chain
Well, it may be tempting to think that with the correct strategies and with excellent supplier relationships, there will be no stock outs. After all, isn’t that the ideal that we should all be striving for? Yet in reality we live in a world where there can be events that can dramatically affect the supply chain. Although everything to do with the supply chain can be, and indeed has to be managed, there is always a risk that things can go wrong.
For example, who could have predicted that a volcano erupting in Iceland would cripple the whole of Europe by grounding all aeroplanes for 2 weeks in April 2010 with further flight disruptions experienced in May 2010? This had an effect on supply chains all over the world, because although many items are still shipped, some vital components or parts may be sent by air.
In addition other external factors, such as acts of terrorism, strikes, acts of God and so on, can seriously affect the supply chain and lead to stock outs despite the best planning and management of stock.
Historic Perspective
Historically the risk of stock outs was kept low by having slack when it came to inventory. So inventory or stock was kept on site, meaning that there was always enough to meet supply demands, even if that demand fluctuated wildly. It was similar to someone keeping a fridge well stocked, in case a sudden influx of visitors arrived.
However, along came Lean thinking and suddenly too much slack with regard to stock was a bad thing; after all, resources had to be used to house the stock, heating and lighting used to make sure it was kept in good condition and it had to be checked and protected from theft. So stock levels were dramatically reduced within many organisations; then a new risk evolved, that of stock outs!
Stock outs will always be a risk, but experts advise that the trick is to manage the risk and ensure that the risks are minimised. Yes an ‘Act of God’ may take place and create a stock out, but on the other hand stock outs should not be caused by internal methods and practices.
Risk Management
Adopting a strategic procurement plan, with robust supplier management, will ensure that the risks of stock outs are minimised, as will robust planning and due consideration of safety stock requirements – By ensuring that a comprehensive and systematic approach is taken to all supply chain issues from the geographic location of stores and suppliers through to carrying out supplier development and improvement activity supply chain risks can be better understood and managed.