Until recently Small and Mid-size Businesses (SMB) did not have affordable, easy to use software tools to help them effectively manage and balance their inventory investment. Software solutions that forecast, plan and optimize an inventory are found in widespread acceptance in large enterprise companies but these solutions can cost between hundreds of thousands to millions of dollars and are generally not affordable or usable by SMBs.
In the vast majority of SMBs, spreadsheets are the common tool in use. They are time-consuming to build and maintain, are usually static data repositories, and according to a prior study by a major consulting firm over 90% of them contain significant errors. But they do serve a purpose. Inventory-laden companies like manufacturers, wholesalers, retailers, and aftermarket service organizations often see that inventory is their largest asset. The cost of carrying excess and obsolete stock, as well as not having sufficient saleable inventory to meet demand is enormously high.
It is common to find excess and obsolete stock representing 30% - 60% of inventory and to find that 5% - 40% of the time, customer demand cannot be met. The latter often results in expediting vendor orders at a premium cost that cannot be passed through (based on Valogix’s research and experience). On a $10M inventory that means potentially $4M - $6M is being misspent, a high price to pay for any size company. Business management solutions today, like Accounting and ERP software, have basic Inventory Control functions such as storing and tracking sales data, costs, and inventory balances (on-hand and on-order). Most let the user manually set Min, Max and Reorder quantities but like spreadsheets, this is a time-consuming, mostly static, and an error-prone process.
The good news is there are solutions to automate and dramatically improve inventory planning. These newer software solutions are known as decision support or advanced planning solutions and some of these are now available at an affordable cost for any size business. These solutions do not replace transaction or business management systems but are complimentary to them. This is a series of four articles covering inventory planning solutions and methods. In the next blog post, we’ll cover the planning process steps.