Companies with multiple warehouses that perform similar roles, such as regional roles, routinely find themselves with too much in one location and too few of the same Item(s) in another. Rebalancing across warehouses might be the answer.
It’s natural to find the On-hand quantities in various warehouses at different levels and with different Months’ Worth. The randomness of demand, differing regional customer preferences, different replenishment practices (Safety Stocks and Order Quantities) all contribute to Item-level quantities being out of sync across a network; high in some warehouses, low in others. Rebalancing by moving the highs to the lows has advantages…
- – Defers purchasing spend…may even eliminate some of it
- – Provides better availability to deficit Branches, more sales from higher Fill Rates
- – Reduces inventory by moving excess to deficit Branches and selling it more rapidly there
- – May expose Branches that have not stocked Items to what has sold well elsewhere
- – Tends to reorder Items in all Branches at the same times–facilitates coordination that makes minimum purchase quantities and price breaks
Simple conceptually, Rebalancing has many options, many ways to accomplish similar results. Here are a few strategies
- – Rebalance the excess of an Item in one warehouse to the other warehouse that has the highest Velocity of that Item.
- – Rebalance the excess in all warehouses to other warehouses so that their Months’ Worth in each is the same
- – Make a pair-wise swap between two warehouses with a two-way freight move
- – Determine the network wide Rebalance and start with the most effective two pair to rebalance
- – Provide an Excess Item-level report to buyers that offers them replenishments from sister warehouses rather than purchases from Vendors
Rebalancing is a way to deal with excess inventory before writing it off and taking the corresponding earnings write-down. Companies with strict excess or obsolete rules or reserve policies find Rebalancing an effective alternative.