The common question “Why didn’t you have that part in stock?”

The primary question for a parts business is one that relates to inventory. What parts do we have to carry in inventory for our customers? In every survey I have seen parts availability is the number one requirement for customers in the capital goods industries.

Most of you have been through the theory of inventory management. Order Points and Order Quantities and Lead Times and EOQ’s. Anyone who has managed an inventory has heard these forever. Most of your business systems provide an inventory package. One of the things that I find interesting is that not very many people in the parts business understand inventory control theory. Of course you can ask the question “why should they?” That puts your complete reliance for inventory performance on someone or something else. That makes us innocent right? Not at all. We still have to provide the parts to our customers. Not only that but we have to supply them well enough that they will keep coming back to us to buy parts. So shouldn’t we know the theory of inventory management? Of course we should.

Those of you that have followed this column have heard me say that “the only part that matters is the one you don’t have.” That is when you can prove to the customer your value to them by finding and obtaining the parts you don’t have the same day the customer ordered them. But again let’s go back to the original question. Why didn’t you have the part in stock?

Of course if you haven’t had enough demand to warrant stocking the part and it isn’t something for which you want to provide protective inventory even without sufficient demand it will be a “non-stock” part and you will never have that part in stock. No I am talking about the parts that have reached sufficient demand to warrant having them in stock. Why do you have a situation where you don’t have the part in stock?

That requires some work. We have to use a little know study called the Back Order Analysis. As the name implies we need to do some work to determine why it was, that this stock part, was not in the bin when the customer wanted to buy it. To determine this we need to explore the causes of backorders and what remedies there might be to minimize having backorders in the first place.

The main causes of backorders are as follows:

Order Not Promptly Placed
Warehouse Discrepancies
Human Error
Factory Shortages
Inaccurate Order Points
Abnormal Demand
Customer Convenience
Let’s dig into these one at a time.

Order Not Promptly Placed

Depending on your vendor “order cycle” stock orders are placed to your vendors daily, weekly or some other time period. The part is put onto a suggested order which normally then is reviewed by an individual in the parts department and a decision made as to placing the order or not. If the decision is made to delay placing a stock order then that might be the cause of a backorder.

I most strongly recommend that dealers NEVER take a part number off of a suggested order. Either the rules you have set to manage the inventory work or they don’t. If people change the results we don’t know what is wrong; the rule or the decision that was made. Then this will be an ongoing cause of a backorder.

Warehouse Discrepancies

This is when the computer on hand quantity is not the same as the quantity on hand in the bin. The first and most prominent cause of this discrepancy is from a physical count itself. The US Navy performed a study on their discrepancies during the 1990’s and found this to be the major cause of the problem. For that reason I recommend that a physical inventory is taken when a part reaches zero on hand or is being received.

Human Error

The part is either in the bin location or in the warehouse in another location but somehow the person picking the order did not find it. We will always have human error the trick is to minimize it.

Factory Shortages

This is the reason for a lot of the backorders and one over which the dealer has little control. We can mitigate it by recognizing early when the vendor is running out of a part but other than that we cannot control the vendor performance on stock orders.

Inaccurate Order Points

There are several considerations with for this cause of a back order. The items making up the order point are not current or accurate, there is a seasonal upswing in demand, the delivery cycle from the suppliers has changed and we have not adjusted our rules. All of these situations can be identified and corrected.

Abnormal Demand

This is an ongoing dilemma. The customer places an order in a quantity that is clearly not normal. For instance; you sell a part twelve times in a year and the customer orders a quantity of six. What are they doing? That is the question that needs to be asked of the customer. Then together, between the customer and your customer service personnel a solution can be found.

Customer Convenience

Finally is the case when it is more convenient for the customer that we place a part on order with the supplier even when we have the part on hand. This might be when the customer orders six items and we only have two of them on hand.

That is the list of the most common causes of backorders. The list has seven items. What is the cause of most of YOUR backorders? In many parts businesses the answer is unknown. It shouldn’t be. You should know the causes of the backorders and then you can take action to correct the situation or mitigate it and minimize the impact. After all the customers tell us they need us to have good parts availability. The “good” is a moving target, I agree, but we can and should do our best providing parts. Isn’t that our goal?

The time is now.

by Ron Slee
October, 2016
Water Well Journal


About Water Well Journal

The Water Well Journal is the leading resource for those working in the groundwater industry. The flagship publication of the National Ground Water Association is delivered to more than 24,000 people every month and covers technical issues related to drilling and pump installation, rig maintenance, business management, well rehabilitation, water treatment, and more.

Since many of the companies in the groundwater industry are small family-run businesses it is critical that Water Well Journal provide much more than technical content. That is why Ron Slee’s monthly columns addressing management, supply, and inventory issues are valuable. It is that type of information that helps the publication achieve NGWA’s mission of advancing groundwater knowledge.