Inventory optimization and planning are crucial elements of business management. With the power of technology, you can automate these functions, beginning with statistical demand forecasting. From there, an inventory optimization engine can calculate optimal inventory levels at multiple points in the supply chain, based on the best-possible net value to the organization, or the entire value chain.
Typically, demand and supply planners track sales and operations using Excel spreadsheets. The problem with this process is that it is manually intensive, time consuming, error prone, outdated, incomprehensive, and generally results in unreliable forecasts and inventory-level recommendations. What is needed, and what organizations are migrating to, is enterprise-grade optimization software. Use the following steps to help you choose the right solution.
Step 1: Customer management
Keeping the customer first is how the selection process begins. Anticipating and understanding customer requirements is the important first step in managing inventory. Customer needs should predetermine orders for raw materials and supplies, manufacturing processes, production schedules, and shipping. The reason? Customers whose orders are delayed due to a lack of materials or other resources often become lost customers, meaning lost revenue, market share, and good will. The solution is cloud-based inventory optimization software, which is designed by industrial engineers, business executives, and software developers to mitigate (or in some cases eliminate) these issues.
Step 2: Warehouse and inventory management
Lowering inventory levels while maintaining or improving service levels is the outcome of inventory optimization and planning. Producing and storing inventory that is not needed is an unnecessary cost. When your business knows what inventory is needed, and when it is needed, you avoid these costs. By increasing the efficiency of your production and warehousing, you improve your internal KPIs, as well as the financial performance of your supply chain. You have to know in real-time what’s in production, what’s in storage, and what’s in the final fulfillment process. Only then can you make informed decisions about optimal inventory levels, including safety stock (the stock kept in storage) to meet an unexpected surges in demand.
Step 3: Relationship management
Business is built on relationships, but experts agree that relationship management is an area of failure for companies when fulfilling orders. Customers appreciate communication about potential problems while receiving correct information about their order status. Using spreadsheets for maintaining and sharing this kind of information is difficult at best and increasingly untenable. Organizing, sharing, and saving this data is a key benefit of inventory optimization software. When this information is available to the shared value chain, the result is improved collaboration, service level, and profit.
Step 4: Look upstream (supply shocks lurk)
When something unexpected occurs that changes the supply of commodities or products, it is called supply shock. Supply shocks can cause a dramatic increase or decrease in supply (and demand) for an item. In 2016, an outbreak of algae in Chilean salmon farms cut global production by 6.8 percent. As a result, supply could not meet demand and salmon prices rose globally.
Vanguard IBP for inventory optimization and planning
Getting started is easy. Contact Vanguard Software. Vanguard IBP for Supply Chain matches advanced analytics with a workflow design that fosters communication and tracks the input and actions of diverse users. This brings into shared view oft-missed planning criteria, such as promotions, cannibalization, competitor actions, supply changes, and phase-outs. Vanguard IBP for Supply Chain brings together inputs from multiple teams to improve visibility and transparency and speed projects along. Contact us to arrange a no-obligation demo and a free trial.