The Business
A regional distributor supplying small retailers with a catalog of roughly 600 SKUs. Purchasing decisions were made by a single buyer, reordering based on a weekly walk-through of the warehouse rather than any calculated trigger point.
The Problem
The business's top 30 SKUs. The ones driving the majority of revenue. Were stocking out 6 to 8 times a month, combined. Each stockout meant either a lost sale to a competitor or a rushed, more expensive emergency order to cover it. Supplier lead times varied by 5 to 12 days depending on the item, but this wasn't tracked anywhere, so reorders were placed at roughly the same "shelf looks low" trigger regardless of how long that specific supplier actually took to deliver.
What They Changed
- Calculated a proper reorder point for each of the top 30 SKUs, factoring in actual supplier lead time and average weekly sell-through
- Started tracking supplier lead time explicitly per vendor instead of assuming a flat number for everyone
- Qualified a backup supplier for the 6 SKUs with the longest and most variable lead times
- Moved from a weekly walk-through review to a live, always-current view of stock against reorder points
The Result
Stockouts on the top 30 SKUs dropped to zero within four months, and emergency rush orders. Which had been carrying a real cost premium. Were eliminated almost entirely. Based on prior lost-sale estimates, the business recovers an estimated $4,200/month in sales that would previously have gone to a competitor during a stockout window.
The fix wasn't more inventory. Average stock levels barely changed. It was buying at the right trigger point instead of by instinct. See Supplier Management Guide for how lead-time tracking fits into this, and Purchase Orders Explained for the ordering process itself.
Could This Apply to Your Business?
- Do you know the actual delivery time for each supplier, or just the quoted estimate?
- How many times has a best-seller stocked out in the last month?
- Would a rush order at a price premium show up as a real cost anywhere in your books?
FAQ
Did eliminating stockouts require carrying more inventory?
No. Average stock levels barely changed. The fix was calculating an accurate reorder point per SKU using actual supplier lead time instead of a flat 'shelf looks low' trigger.
Why did lead time matter so much in this case?
Supplier lead times varied by 5 to 12 days depending on the item, but this wasn't tracked anywhere, so every SKU was reordered at roughly the same trigger regardless of how long its specific supplier actually took.
How long did it take to reach zero stockouts?
Four months, after calculating proper reorder points for the top 30 SKUs and qualifying backup suppliers for the ones with the longest, most variable lead times.
Read the Guides Behind This Story
- Purchase Orders Explained. the guide behind this story
- Purchase Planning Explained. the guide behind this story
- Supplier Selection Guide. the guide behind this story