Guarding Against Excessive Rounding-up to Meet Vendor Packaging Restrictions

Charles J. Bodenstab

Slow moving inventories are frequently created by the packaging restrictions of vendors. As long as the sales levels for an item are substantial, there is little problem in this regard. A problem arises however, when an item is relatively slow moving, and the vendor either has restrictions on the minimum order size for the item or a fairly large packaging size.

For example, assume an item moves only periodically and has an average demand of one or two per month. Additionally, assume that the carton size is mandatory at 50 units. This condition then automatically results in an inventory of over two year’s supply after a reorder is placed. If this situation is brought to the buyer’s attention prior to placing the order, he or she could possibly decide that the item did not warrant being an authorized stock item. Or, the item could possibly be ordered from another source where the packaging was more liberal, albeit at a higher cost.

MARS-IW has this capability of alerting the buyer to just such a situation. The feature is the "vendor minimum alert" and as the name implies, will alert the buyer if the vendor has a minimum order amount that has forced MARS to significantly inflate the amount being ordered vs. the amount needed for normal demand. The same feature will work for either vendor minimums, or for simple lot requirements. The latter application requires some special, but simple steps, and will be discussed later.

The use of this feature is fully described in the documentation under "vendor minimum alert". In essence you are given the option of stating by vendor, or even by single SKU, at what percent of the order inflation you want to be alerted (e.g., I want to be alerted if the vendor minimum required that I had to inflate the order by more than 75%). Then you simply create an order as normal, but at the end of building the order you simply depress the "vendor min" button on the order screen. MARS will then highlight any item that met this criterion.

This same feature can be used to alert you to a situation where there is no vendor minimum, but there is a fairly large packaging requirement, and the demand for the item is sparse. To make use of this feature the download program should be programmed to insert the "lot size" into the "vendor minimum" field, as well as leaving it in the lot size field. This should be done only for items that have a mandatory lot size requirement, however (e.g., lot size sensitivity is 100%). If the lot sizing is optional MARS will automatically know not to round an order up excessively.

Note, first of all, that this action actually has no impact on the functionality of MARS. If the vendor minimum and lot size are the same, and are mandatory, then you have no choice but to order up to the first lot size, whether it is driven by one criteria or the other. Taking this action, however, has now given you the option of using the vendor alert feature.

For example, assume that there is no vendor minimum as such, but the carton size is 50 units. Assume also that the demand for the item is roughly 1 or 2 per month. If you took the actions just described, and were ordering for that item, you might be alerted to a situation whereby MARS needed only 2 items, but was being forced to order 50. This is certainly a situation of interest.

Note that if the demand levels are strong and MARS is calling for an amount close to the carton size or beyond the carton size the issue is academic and you would not be alerted.

The automatic and dynamic nature of MARS, and this feature, becomes a powerful force in policing the inventory for situations that evolve over time. For example, assume that you have an item that has substantial demand and a large packaging requirement. Over time, however, let’s say this item starts to lose popularity due to any one of a variety of reasons. Gradually, the sales diminish to the point where the packaging issue becomes a serious problem. The first time this situation arises you would be alerted under our scenario. You would then be in a position to make a judgment call on whether this item should be retained as a stocked item. Note that on the surface the item is not an obvious candidate for removal from the stock list since there is periodic demand. It is the combination of low demand and a high packaging requirement that creates the issue.