Ordering costs can skyrocket when managing inventory. On one hand you want to keep your inventory levels low so that you don’t tie up cash and on the other hand you want to have inventory on hand so that you are placing a high volume of orders. Both have their positives and negatives. One of the more common ways to go about lowering ordering costs is to use an approach known as joint replenishment.
Joint replenishment is a technique wherein products are ordered in groups, families or simultaneously rather than individually. Joint replenishment is often referred to as the joint replenishment model. In the joint replenishment model, several items are ordered from a single supplier; and several products share the same means of transportation. In other words a group is ordered, set up, transported or manufactured to pool the costs across many items which ultimately creates a discount that is based on economies. A joint replenishment system is most commonly used in multi-item inventory replenishment. It helps to improve on the total cost when ordering items individually because they are grouped together. There is however one critical element that is necessary for joint replenishment to work and that is there must be some kind of commonality amongst the items being grouped and replenished. By coordinating the replenishment of several items, cost savings can be obtained by sharing the cost of activities like, setup and transportation between the items. In many practical situations, it is desirable to jointly order and replenish items because they may share the same supplier or use the same method of transportation. And that’s it for joint replenishment.
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