Your company has mission to be the best supplier of your products on the market today. Most companies define what that means in terms of serving the customer. For example, your customers can send you an order and get a return confirmation promptly. You will ship all orders within 24 hours. You will offer a variety of products that is both broad and deep. All great goals to build and grow a business. Now, you go out and spend a ton of money on the inventory. To buy smart, you use economic ordered quantities (EOQ) and take advantage of your vendor’s special deals.
Sometime down the road, you see some disturbing results. Complete orders shipped are down, you lost a few sales to new customers due to late delivery promise dates and a few of your repeat customers aren’t returning to buy more. How is this possible with the size of the inventory investment you made?
Most small and midsize businesses (SMBs) that produce or distribute products have, at best, rudimentary software for managing their role as supply chain participants. Robert Anderson, SMB analyst and research director at Gartner (www.gartner.com), the leading resource for unbiased industry analyses, views supply chain management as an area where a well-targeted solution scaled to SMBs’ unique requirements can quickly provide returns that justify the investment.
It is common to find excess and obsolete stock representing thirty-sixty (36%) percent or more of an inventory and to find that five-forty (45%) percent of the time customer demands cannot be met. At worst, you are losing sales; at best, you are shipping more items at a premium in order to fulfill orders, further driving down the profit margins.
Noting that few SMBs have embraced supply chain planning and optimization capabilities, Anderson believes that as the economy improves and order rates increase, supply chains will have to become much more competitive, doing a better overall job of meeting demand while reducing waste and inefficiency.
Your inventory planning strategy
The first requirement for most companies will be to map out a strategy of how your inventory and your capital (cash and or credit) will support your customer service goals. As you work through this, you may find you will need to refine your service goals a bit to make it more affordable set of targets.
A key part of a good strategy is to have good communications and relationships with your materials suppliers and manufacturers to get good prices and quality service on what you buy. You should negotiate prices with suppliers, check the quality of materials, and keep an eye on social and working conditions in their region. The goal is to insure you get the supplies you need, when you need them, at the price you feel is reasonable.
Moving forward, are you able to break down your operating inventory into the three major categories when reporting levels—safety, replenishment and excess or obsolete stock?
Who decides key inventory-related policy such as striking the right balance between customer service and cost-effective product inventory levels? Many decisions about inventory levels are strategically important. So instead of relying solely on the supply organization to decide, executives need to have a major say in the fundamental issues that impact inventory management—everything from determining the right breadth and complexity of product offerings to optimal plant and distribution footprints
This breakdown makes it easier to make sound decisions about appropriate levels for each of these three areas. It helps determine the minimum safety stock needed to provide an insurance policy against supply chain problems either from manufacturing glitches or distribution uncertainties so that customers get what they ordered. It is useful for pinpointing the amount of inventory required to replenish deliveries every two weeks. It also helps companies find ways to avoid a backlog of excess or obsolete inventory
Other things to consider:
- Every time a product is shipped, moved, and loaded, it costs money. The fewer times someone moves or touches the item, the fewer costs are associated with it. Set your strategy to place product as close as you feel necessary to your customer base.
- If you have multiple stocking locations you can have different service levels based on the lead time to replenish stock. The master warehouse will have longer lead times so a service level of 90% to 99% is appropriate. While remote locations that are replenished from the master warehouse, can have service levels of 50% to 75% because they can be supplied in a few days.
- Reconsider which items are stocked on the shelf versus special ordered from the supplier. Some items that are slow moving may be good candidates for this approach allowing you to stock fewer SKUs.
Once you developed your inventory strategies that support your customer service goals, you need to consider using an advanced inventory planning and optimization solution to help achieve your goals.
So, what will you gain by implementing smart strategies and advanced inventory planning?
- time wasted by doing manual planning
- computer processing time and energy
- excess inventory
- capital spent on too much inventory
- printing supplies and paper for reports
- lost sales due to poor inventory mix
- optimal replenishments
- stock transfers utilize existing inventory
- automation removes complexities
- alerts warn of impending stock-outs
- planning time reduced dramatically
- planning groups and scheduled planning
- improve time utilization
energy costs due to faster efficient planning
expedited shipping costs from vendors
expedited shipping costs to customers
taxes on inventory
Now is the time, to bring it all together: your customers – your goals and strategies – your inventory planning solution and your team.