A Red-Yellow-Green report is designed to bring attention to items that you will run out of in seven or 14 days. As you become more efficient in your purchasing decisions and begin inreasing turns, you are more likely to run out of inventory. If you are out of inventory, you can't service your customers. You can avoid that problem by having the purchasing department provide a report similar to the reports below, only with items that you are either out of stock or will be soon at current sales levels. Most LBM businesses can respond to purchasing items within 14 days, while seven is sometimes tight.
The purchasing manger should not only report to management the upcoming possible outages, but also provide a plan to avoid the outage. This plan may involve paying extra freight, purchasing from a secondary supplier or competitor, or substituting items. But running out of inventory is the worst alternative and not acceptable.
If you are in the manufacturing business and you run out of key items, you can actually shut down production. You can't build door units without hinges and you can't build trusses without plates. Yet, it amazes me that I still hear of outages in these areas.
Here is what to expect:
First, expect that your purchasing staff will begin practicing better data hygiene because it will have to present these reports by vendor, department, class, or logical order so that it can respond to the upcoming outages.
Second, expect that the report will be huge at first. It will be the purchasing department's job to prune the list.
Third, expect that your vendors may become better engaged with you as you providing reporting to them about your business and put pressure on them to perform and hit their deadlines.
While I have described red and yellow on the report. I have not described a green report. Why? Because green means go and all of your items that are green should be in stock.
Ine more thing. The report will not stop a customer from asking, "Give me all of your PRODUCT that you have in stock," thus creating a stock-out. This can't be avoided, but iff this does happen, the item that the customer just purchased will be on the report because you will be out.
It is not an exact science, but you must become disciplined in your purchasing approach. This method works. Give it a shot. As always I am interested in your feedback. Please email me at email@example.com with successes and challenges.
Red Report Example
Yellow Report Example