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Stock Control: be careful if you supply goods to order. By David Carter

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7th Dec 2006
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Thinking of buying an accounts package for order processing and stock control? If you supply your products to customers ex-stock, you should be OK. But if you supply your products to order, you could find that the well known packages like Opera, Exchequer or Sage MMS aren't good enough.

Stock control is a different world from accounting and it hard for one package supplier to be really good at both. Many try, and the stock control facilities in packages such as Pegasus Opera II and Exchequer, for example, are pretty good. But they are designed around a traditional model, and if your company differs from that model to any major extent, you may find that they have serious limitations.

Reader Carl Burton had this problem in a recent Any Answers posting. “We are a medium size wholesale supplier to manufacturers on a just-in-time basis. As such, we must be able to forecast our future stock levels for each product, for each day, for the next 2-3 months, based on constantly received new and amended sales orders.

“Most systems appear to simply look at the current stock figure, take off outstanding sales orders and add on outstanding purchase orders to give a projected stock figure. This is usually very misleading.

“We currently use Opera and are looking at Opera II, but this does not improve the stock reporting. We are looking at other providers, but to date have not found the required solution. Are there any reasonably priced accounting systems which can show projected stock levels by day?”

As Carl points out, packages like Opera II, Exchequer, Sage MMS simply give a lump figure for Free Stock which can be very misleading. Suppose, for example, that today is January 1st and you have 200 of product X in stock. You receive a sales order for 500 for delivery on March 1st. These packages will tell you that your Free Stock is now 300 negative, even though you have plenty of stock for the next two months.

Why is this? The answer lies in the two different models of stock control. The first is to supply “ex stock”; the second is to supply “to order”.

Stock Control Model #1 – supply ex stock
An ex-stock supplier holds large stocks of product so that when customers ring up with their orders, the supplier can take the items off the shelf and despatch them immediately.

Many distributors - probably most – work this way. In effect, they act as a storeroom for their customers. When a customer runs out, they can just get on to the local distributor and get more supplies within a day or two.

But this model is expensive. A lot of working capital is tied up in holding stocks of all products. And customers get lazy and make you do all the work. They keep minimum stocks of their own and wait until they’ve run out before giving you an order. Then they expect you to have the product instantly available to get them out of trouble.

Furthermore, to have product available off the shelf you have to forecast (ie guess) the future demand from your customers and place purchase orders “blind” on your suppliers. This is risky. Publisher Dorling Kindersley forecast that the new Star Wars film would be a great success so it placed big advance orders for product. The film bombed, and DK were left with millions of pounds’ worth of stock it couldn’t shift. So it was goodbye, Dorling Kindersley.

Stock Control Model #2 – supply to order
The second model is the company that supplies “to order”. It doesn’t place orders on its suppliers in advance, but waits until it has first received an order from the customer. Obviously this is a lot safer because, whatever you buy from your suppliers, you have a customer for it already. The downside is that you don’t have the product in stock, so the customer has to wait maybe a week or a month for delivery, and customers don’t like to be kept waiting.

So the supply to order model works best in the case of products which are specially customised in some way rather than standard.

But because the supply to order model is so much less risky, every company tries to use it if they can. The name of the game is to educate your customers not to wait until they run out of stock, but to estimate their future usage and give you orders for delivery a month or several months in advance. When you place your own order on suppliers, it is already covered by sales orders from customers.

This is how Carl’s company operates – they constantly receive new and amended sales orders for delivery over the next two or three months. They now need a system that will take the required delivery dates and extrapolate forward to tell them their future stock levels. But they can’t find a package that will do this. Why?

Packages are designed to the ex-stock model
With the ex-stock model the customer wants delivery NOW. There is really only one required delivery date - it's today, or rather yesterday. So the required delivery date isn't important.

But in the to-order model you are constantly monitoring anticipated receipts from purchase orders to ensure you will have stock to meet delivery dates to customers. Here the required delivery date is THE key field.

The problem is that for the last 40 years software developers have designed their packages around the ex-stock model and don't bother about the required delivery date.

If you are looking at stock control packages, this is one of the areas which really sorts out the sheep from the goats. One package which does handle forward stock levels very well is Lakeview. Another, which we’ve recently reviewed, is Encore from Anagram. Take a look at the Encore screen below to see how it should be done.

Future Stock Availability – Anagram Encore
This screen shows future stock levels of part number 002-S301, Spring Balance 2kg.



Free stock (far right column) as of today is 3004. There’s a sales order for 200 due for delivery in week 10 (far left column), leaving a free stock at the end of the week of 2804. In week 11 a purchase order is due to be received for 1000, bringing free stock up to 3804.

Looking at the top right, we see that this screen shows forward availability by week, but Encore also allows you to show it by month, or on a daily basis (“by record date”). This is a great piece of screen design.

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Replies (11)

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By dwd2c
13th Dec 2006 19:42

Professional stock control links etc
Back again! The problem with this for me is that I've been working with production planning & control, logistics etc for years, so before I wrote the last post I had started to write a new white paper and tore it up ... it wasn't a comment posting I had written. I'll write you a white paper on the topic if you like, free to your readers.

The best-known wordwide organisation for all this stuff is APICS (American Production & Inventrory Control Society) - they are the US professional body for production planning, stock control & logistics - GOOGLE WITH APICS! The UK equivalent that started as BPICS (British P & ICS) has now become the Institute of Operations Management, of which I am one of the very few Fellows (bragging, eh?) - www.iomnet.org.uk. Go look there, many courses, very helpful guys, a regular magazine called Control etc. - and only in University of Warwick Science Park in Coventry.

What you are saying isn't new - that's why ERP systems have safety stocks, reorder points, fixed planning periods where you prevent changes that can screw everything up, limits to the planning horizon so you don't get taken in by either your own or your customers' forecast guesses. Good ERP systems also recognise that if you have enough demand for your goods from enough separate customers then the direct customer demand is no longer the thing to work to ... it becomes a case of working to forecast. When you actually get an order then "consume" a part of the forecast. The thing to KNOW is what your own business/supply model really is and to avoid being another make to order company that rents still more warehouse space.

As examples GE LIghting doesn't make to customer order to make light bulbs, nor does Kellogg to make cereals. But Astrium make to order to build satellite payloads!

David Wynn
[email protected]
www.d2c.org.uk & www.twinfield.com

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By dclark
12th Dec 2006 16:38

Some clarification
Thank you to John for making the true point about stock movements “it is a black art”. There is no right answer, because the moment I give you the answer it is wrong. I may have 100 in stock and I have orders ready to go for 100, but then my best customer comes in and says “I need 35 now!”.

Some extra information for you. An expected delivery date is assigned at the point of order entry. The date defaults to today (the worst case scenario). If you change this at that time future lines pick up the changed date. You can re-access an order it at any time (up until it is despatched) and alter it (even from the screen David showed), you can alter all dates on one sales order in one go, etc, etc, etc, but the key is it gets a date. Given you can see this information on screen at the line item level on a sales order as you are entering, it’s not that difficult to assign an expected delivery date if the customer has not asked for one.

In addition we need to make sure we don’t mix the concepts of taking orders and when they are expected to go out with how you as a business actually deliver those orders. It is very easy to take customer orders for 1000 widgets A’s with none in stock. How I decide to meet those orders is a different question and answered elsewhere in Encore, where questions of don’t part ship, preferred customer status, customers on stop, etc all come into play. In the example, “I order 10 of widget A and 5 of widget B. I don’t have any of Widget B I don’t want to part ship this sales order. What date will appear in the schedule you have above, or do I just guess?”, the answer is, the date required is the date required. If I have none I can’t deliver, but using the processes to cover delivery (ie please take into account don’t part ship, preferred customers status, customers on stop, etc) this order would be classed as don’t part ship and held. Or having seen it can’t be done the sales order people ring the customer (having previously been chased for the order) and say “do you want the 10 widget A’s anyway, but you’ll have to wait for widget B”, a few clicks and it’s don’t part ship status is released and it can then be dealt with.

The point is to arm users with relevant tools to support their job, not have a system tell you “you must do X”. This one screen shot is one tool. To some it is important to others it is not, but it is only one of many and not one a dealer has to construct on the fly.

Cheers

Daniel Clark
Ryba Macaulay Ltd
[email protected]

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By dwd2c
13th Dec 2006 19:55

Stock control - highly theoretical
David,

Sorry forgot this bit ... yes there's a lot of theory, but in the end stock control and stocking policy are an area of the business where the accountant gets a vote and crunches the numbers, but doesn't normally get the decision. In my opinion they shouldn't choose the software either.

If you are supplying replacement bearings for machine tools then the customers expect next day delivery or they shop elsewhere. For food packaging just miss a single delivery and the food packer in turn lands up with his late delivery as well & then gets fined by the supermarket ... so you definitely won't be popular.

For building the Trident replacement don't even think that stock is the major concern, just control the costs and deliver more or less on time & you'll be eveyone's hero, or perhaps even considered as a miracle worker who walks on water ...

Stock control is theoretical but it's stock POLICY that matters to the business.

David Wynn
[email protected]
www.d2c.org.uk & www.twinfield.com

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By dwd2c
12th Dec 2006 12:38

Spot on - accounting packages aren't the answer
Spot on, David ... software development for this stuff has been going on since the 1960's using work from pioneers like Orlicky, Possl and Wight. Their legacy is the myriad of systems that began as MRP (material Requirements Planning), evolved to become more enterprise resource related and have landed up being concerned with the complete supply chain.

Ultimately there needs to be something rather more than a simple spreadsheet or dated in/out chart, so it's more than you seem to have implied. The challenge today is to pull the whole supply chain together - after all if you have a supplier who can drop-ship within 24 hours then in most industries this would mean you need zero stock.... same thing if you have the in-house manufacturing capacity to transform raw materials into your finished product in a very short time.

In the ERP (Enterprise Resource Planning) world what's being asked for is pretty common, usually called Available to Promise (ATP). The challenge is to move from what we have today towards an integrated supply chain with different systems talking properly to each other - perhaps your internal SAP system talking to many different suppliers' planning and control systems. This is research and development work-in-progress and only becoming possible with developments in the Internet world.

David Wynn
D Squared C Ltd.

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By David Carter
12th Dec 2006 10:11

response to points
David,
Agreed I should have said "accounting software developers" but I think it was fairly clear from the context who I meant.

John, I accept the point that delivery dates are about the future and therefore often soft. They are estimates only and there to help the stock controller, not take over their job. On your specific points:

- enter the delivery date at order entry time because there should be one on the customer's order.

- I'd be looking for a flag in the customer record as to whether this customer accepts part-ship. But I'd still project the stock forward.

- the package should have a "reserve" facility for an order you know is coming but haven't received yet.

Obviously, yes, it is possible to write your own report to reproduce the Anagram screen. But the fact that the Exchequer, Opera, MMS (and Access!) designers aren't even thinking about projecting stock balances forward is a worry. What else have they left out?

The point is that on this site readers ask for advice about which package is best for stock control and we automatically assume that an accounting package is the answer. Perhaps this is just wrong in principle - we should be referring them to software suppliers who deal full-time with stock control, not as a sideline to accounting ledgers.

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By david_terrar
11th Dec 2006 15:30

Available To Promise has been around for a while
David,
I get really worried when you come out with statements like "The problem is that for the last 40 years software developers have designed their packages around the ex-stock model and don't bother about the required delivery date." If you qualified the statement to clarify that you mean developers of lower end, accounting oriented packages, then I would understand, but manufacturing, logistics and ERP solutions have handled "Available To Promise" for a long, long time. Of course some order processing and logistics systems don't handle it properly, but many do, and so calculate free stock on a data by date basis, taking in to account orders in, orders out and any reserved stock. Packages like NetSuite, or Great Plains Dynamics, or Fourth Shift, or your favourite Business One have the functionality. I'm glad to see the guys from Opera II chiming in and saying Pegasus have a work around that addresses it. It will be interesting to see if other, more affordable commercial and logistics software suppliers spot this post and add their weight to the options available.
David Terrar
Mailto:[email protected]
web: http://www.d2c.org.uk and http://www.twinfield.com
blog: http://biztwozero.com

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By David Carter
13th Dec 2006 14:10

Are there any professional journals on Stock Control?
David, thanks for that. I have googled Orlicki, Possl and Wight, and found a book on MRP by Orlicky. But what I would like to know is: are there any professional or academic journals where I can find discussions of stock control? It is, after all, a highly theoretical subject.

When I started in industry years ago the accountants seemed to take a big interest in stock and there was plenty of discussion about it . I may be doing people like CIMA a disservice, but nowadays I get the impression that the accountants have simply lost contact with what's going in the world of stock and inventory.

Certainly, most of the packages I see from the accounting software vendors seem to be stuck in a time warp.

For example, take re-ordering. Most packages are still using fixed min and max re-order levels in the product record. This made sense in pre-computer days, but with the ERP system recording the sales figures, obviously the computer should now be used to dynamically re-adjust min and max. I've been raising this point with accounting software vendors for the last 15 years but none of them seem able to understand what I'm talking about.

Who are the experts in stock control theory these days and where can I find them?

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By CRebel
08th Dec 2006 14:12

A Simple solution
Carl is correct about MMS, if you process the order due AND Allocate stock then the free stock figure is reduced. However using the JIT Model you need to simply allocate the stock at the point of receipt of the stock ordered to fulfill the future order. Soemthing easily done in MMS!

Regards

[email protected]

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By alastair.ama-it.com
08th Dec 2006 13:14

Don't rule out Pegasus Opera II
Whilst I agree the Future Stock Availability screen that David Carter shows in Anagram Encore looks good, the same results can easily be displayed using Pegasus XRL & Opera II (but tailored to the customers requirements). I've just set up an XRL spreadsheet now (took me 30 mins), which shows projected stock figures based on outstanding Sales Orders & Purchase Orders with forward due dates. Opera II also has back-to-back ordering facilities where purchase orders can be generated automatically from sales orders, ideal for the "supply to order" type business!
You"ll never find an off the shelf accounting software that ticks all the boxes all the time. However Opera II, combined with XRL, is an extremely flexible solution which can be twisted to work in any number of ways. I'm sure if Carl Burton talks to his local Pegasus reseller about the issue, he'll get the ideal solution at a fraction of the cost of moving away from Pegasus.
Feel free to contact me if you need any further information - [email protected] or www.ama-it.com

Regards
Alastair Moir

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By jacp400
08th Dec 2006 14:01

Nice feature. Have a couple of questions though....

1/ Does this mean that you need to assign a delivery date to every line of every order, and when do you do this? At the point of order entry, the point of allocation, or later on.

2/ If yes, then what if you dont know when the stock needs to be delivered because you are waiting for delivery of another item and you dont want to part ship.

For example; I order 10 of widget A and 5 of widget B. I dont have any of Widget B so I'm going to order some later today. I dont want to part ship this sales order. What date will appear in the schedule you have above, or do I just guess?

3/ If no, then what happens to orders that havent been assigned the date? Where do they appear in the schedule?

4/ What happens in the following example;

Customer orders 100 Widgets. Have 150 on Purchase Order but you know you need to keep 75 in stock for a future order you havent received yet. The schedule above doesnt show you have a problem.

What the schedule above misses is the purpose of the stock on order. For a client, for r+d, for stock etc?

Experience tells me that handling deliveries in and out is a black art and full of exceptions so you dont want to be tied to a system that forces you in to making decisions that you dont know the answer to.

Also, fair point below. One nice feature does not a good accounting system make, and there are plenty of nice features in Exchequer and dare I say it MMS for most customers.

Regards and good weekend all

John Clough
Head of Business Solutions
BDO Stoy Hayward LLP

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By Oligopoly
16th Dec 2006 12:00

Back to Basics
There is a danger of over-complicating the stock information required when operating a ‘supply to order’ system. Full blown ERP systems are not necessarily the solution - particularly for a medium sized business. We have first hand experience of receiving information from customer ERP systems which, if we had taken the information as gospel, would result in their production lines being stopped because we/they would run out of stock! In a dynamic manufacturing environment where our customers’ production runs are relatively short and constantly changing to suit their incoming orders, I do not believe that anything approaching accurate forecasting is possible using software packages – there are too many variables which require human knowledge and judgement. What is required is the available information clearly laid out in a manner conducive to good decision making.

Encore does appear to be closer to providing clear, relevant information than most, although there are still gaps – such as an additional view based on date of despatch, a narrative column, and possibly a dynamic re-adjustment of min/max levels as David suggests. But these shortfalls could probably be overcome by Anagram.

What I do find incomprehensible is why systems including Opera II are not able to produce the live information displayed by a product such as Encore. Much of the information required to create the Encore grid would be input when keying in sales and purchase orders. Surely it is not difficult for Pegasus to come up with better information than current stock - outstanding sales orders + outstanding purchase orders = projected stock. The two packages are even written using the same database – Visual FoxPro! It is becoming tiresome to constantly hear Pegasus resellers using the impressive XRL as the solution to what are effectively shortcomings in the Opera product. If “the same results can easily be displayed using XRL & Opera II” (in 30mins) then why hasn’t Opera II incorporated this screen as standard? Worrying.

Packages such as Opera II, Exchequer etc. appear to follow the latest trends, such as introducing and promoting CRM modules, emailing documents and so on, instead of firstly getting the basics sorted out. These modular based products obviously expect to charge a fee for a stock module that clearly is extremely limited and, as David Carter suggests, is well past its ‘date required’!

Regards
Carl Burton

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