Accounting Best Practices, Fifth Edition

16–34. Obtain Direct Links into Customer Inventory Planning Systems

The purchasing department usually places orders based on the requirements output by a material requirements planning (MRP) system. Though this output may appear to be precise, it is still driven by an estimate of what someone in the sales department thinks customers are most likely to purchase. Consequently, despite the appearance of a great deal of precision in the types and quantities of parts ordered, the purchasing staff’s efforts may still result in excess inventory or shortages.

A solution is to actively pursue direct system linkages with the inventory planning systems of customers. By doing so, one can eliminate all estimates from the planning process and avoid considerable amounts of excess quantities for some inventory items and shortages for others.

The problem is getting customers to agree to reveal their demand information. This can be achieved by suggesting some type of shared cost savings, or by promising long-term fixed pricing, and so on—the inducement must be sufficient to attract the customer’s attention, while at the same time not being too expensive for the company. Another approach is to offer the customer free software with which it can more easily place orders to the company, which yields a less efficient manual linkage to the customer. Given the time required to achieve direct customer linkages, this best practice is usually only cost-effective for the largest customers.

Cost:

Installation ...