Accurately purchasing replacement stock is a difficult and time consuming task. If you don’t purchase enough of a product, you will run out of stock and lose out on sales. Purchase too much and you tie up money and shelf space. Many retailers spend many hours calculating order quantities to enter into their POS system or employ staff to perform this task.
Automatic purchasing uses an algorithm to calculate order requirements. Point of sale systems with automatic purchasing allow you to expedite processing and delivery, accelerate cash flow and minimise manual labour and mistakes.
It is true that new tasks are introduced to maintain correct stock data, but these tasks require less labour than manual ordering.
When setting up automatic purchasing, you can choose to include products by group or individually. Automatic purchasing can be done for all branches or for just one branch.
The algorithm to calculate the required stock takes into account many inputs. Some of these are set up once and tweaked as time goes on and others are very dynamic. Some typical inputs are:
- Current stock levels and projected stock level at time of delivery.
- Minimum and max required stock level.
- Exceptional sales not yet reflected in the current average sales.
- Customer orders and transfers requiring stock.
- Overstocks at other branches.
- Pack quantity (minimum order) at the product or product-supplier level.
- Undelivered purchase orders still pending.
- Quantity purchase discounts (bulk buys).
There are different types of automatic purchasing systems. The most basic type is ‘order supply’ which is a purchase order that is created from a customer or factory order. This method generates individual purchase and/or factory orders to cover the needs. Some points to note are:
- Purchase orders are raised using the best supplier for each product.
- Order is automatically cross-referenced to its source.
- Priority given to originating document on the receipt of goods.
- Over supply distributed to other orders on a priority basis.
The next level of sophistication is ‘semi automatic’ purchasing. In this system a selected purchase order is loaded with suggested purchases for that supplier on a given range of products.
Two options are:
- Order only items for which this supplier is the most preferred.
- Order items from this supplier even where they are not most preferred.
The most complete type is ‘Fully automatic’ purchasing. This type surveys a range of products and generates purchase orders as required from which-ever suppliers are necessary.
Within this type of ordering there can be variants such as:
- Urgent order – this generates orders using the fastest suppliers to cover critical shortages.
- Catch up order – this generates orders to top up where necessary between regular orders.
- Regular order – this generates orders for the beginning of the next order cycle to maximise sales opportunity before supplier payment.
It is always a good idea to do a complete stock take before commencing with automatic ordering. Regular spot counts will ensure stock stays accurate.
You do have the opportunity to manually review and adjust the orders prior to them being sent to suppliers. When making adjustments ensure that you also adjust the inputs to the algorithm that created them to ensure more accurate calculations next time.
A retail system with automatic purchasing enables the store owner to maintain the correct stock levels, keeping the customers happy without eroding profits on expensive labour or excessive overstocks.