Using the 5% Rule in Deciding Quantities to Order

Good stock management is a precarious balance between the demand for goods we face from customers and the supply levels we desire to maintain. To over-order stock for some speculative consumption rate that is just theoretical is a waste of capital resources when it is unknown how soon the capital can be recouped through sales. Patterns establish themselves in each financial quarter that cannot be anticipated, despite the regular consumption rates our established customers present to us. A standard rule of thumb is to take the previous year’s quarter and add 5% to it to meet such unanticipated demands. But if items sell in enormous amounts in only one quarter of the year then the “5% over” rule will not likely apply. In such cases, reliable and accessible historical sales information becomes invaluable because we must find the highest number of an item that was ever sold in that respective quarter and then subtract 5% from that highest-ever count. This more accurate rule is known as the “Double Five”, and is a standard concept used in today’s marketplace. With the ease of access to historical data that SIMMS Inventory Management software makes readily available to all users, these decisions — and counts — stay right at your fingertips. Contact KCSI today for more information on how SIMMS can keep you on top of this order amount issue.