The Business Problem
Until recently, Small and Mid-size Enterprises (SME) 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 of dollars to millions and are generally not affordable by SMEs.
In most cases, spreadsheets are the common tool in use! They are time-consuming to build and maintain, are usually static data repositories, and according to a study by a major consulting firm over 90% of them contain significant errors.
For organizations that carry an inventory, like manufacturers, wholesalers and retailers, that investment is often 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 new 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 enterprise. These solutions do not replace transaction or business management systems but are complimentary to them.
The advanced planning systems use existing transaction data to plan future inventory needs. Some of these solutions cover the complete all the planning processes in one integrated planning engine.
Forecast demand, use business rules, and optimization models to effectively determine how much to stock to hold and where to stock it.
Apply algorithms for Demand Planning (forecasting)
Generate replenishment orders that are more balanced for high customer service, minimizing excess inventory and stock-outs.
Provide visibility on how well the company is working toward their goals (i.e. inventory savings especially of excess and obsolete inventory and turns), supporting customer service levels, and increasing sales volume.
Manage and display inventory at all locations in the network. In the case of distribution, this tends to be multiple warehouses; in service organizations this extends to service technicians’ trunk stock; in retail it includes stores and warehouses and even inventory at customers.
Companies using these advanced inventory planning and optimization solutions have very specific metrics they use to measure the change in business performance. The metrics usually cover three major areas:
Cost reduction and avoidance
Increased customer satisfaction