Effective Replenishment Parameters, Part 3: Target Orders and Review Cycles
If you reorder a product when its replenishment position reaches or falls below the minimum quantity you will avoid most stockouts. Often a distributor has to place an order of a certain size to get the terms or discounts necessary to competitively sell the vendor’s products. This “target order” requirement can be expressed as:
A minimum number of pieces
A minimum monetary amount
A minimum weight or weight range
A minimum cubic volume or cubic volume range
The average amount of time necessary to sell, transfer, or otherwise use enough of the vendor’s products to meet the target order requirement is called the review cycle or order cycle. What if the replenishment position of one item in a vendor line falls below its minimum quantity but there is not enough need in that line to meet the target order requirement?
Do you wait until there is enough need to meet the target requirement, causing a stockout of that one item? Do you produce a vendor purchase order, making up the difference necessary to meet the target requirement with products you think you might need in the future?
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