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Inventory Planning Blog
Ease of Use is the Key to Successfully Using Advanced Inventory Planning Solutions
There are a lot of inventory planning solutions available from all types of companies around the world. Many are designed for large enterprise companies as they cost hundreds of thousands of dollars and are highly complex. Some so complex a math or science degree is required just to operate the system. Others at the low end may be just point solutions for just forecasting, as an example, or offer individual modules you need to buy separately.
Most of these solutions include a forecasting capability either their own or from an included third-party provider. They usually also offer min and max levels, safety stock and replenishment calculations. Most require you to manually set replenishment levels and have you select the appropriate forecast method.
But how many offer real inventory optimization and why is this important? There are many reasons why inventory optimization is critical for conducting business in today’s ever challenging economic climate.
First of all is the cost of carrying, holding and managing an inventory. The costs for most items are steadily increasing, real estate costs and taxes are up and shipping costs are through the roof. Inventory optimization provides a great balanced inventory to meet expected demand, while reducing costs and better controlling spend for additional stock purchases. Planning in a timelier manner reduces the need for expediting orders in from vendors, which in-turn reduces the need for expediting shipments to customers.
Secondly, optimization dramatically improves the financial performance of an inventory because buying and stocking are more in-line with expected customer demand. It helps to reduce and almost eliminate the future build-up of excess inventory and dead stock.
Third, there are too many known and unknown variables that can affect your inventory and subsequent customer service levels to manage properly. Just forecasting and planning your inventory leaves you wide-open to problems in meeting both your financial goals and customer expectations. Trying to plan with spreadsheets is even a worse situation that will eventually lead you to higher costs and lower service producing a higher level of customer dissatisfaction and lost business.
Investing in smart solutions that improve your inventory planning is an important business decision and necessary in today’s global and troubled economy. Sometimes the concept of spending money to save money is very hard to accept. There are no guarantees the investment will pay off, so there is some level of risk involved. But, is it any riskier to do nothing? To maintain the status quo?
The basic purpose of Material Requirements Planning (MRP) is determining how much of which products needs to be either manufactured or purchased based on it being a component or ingredient of another item. MRP also determines when the product is required. Every item can have either Independent Demand or Dependent Demand.
Comparison to Spreadsheets
Spreadsheets are manual, time consuming. They do not provide intelligent part mix management and part specific forecasts. In addition, spreadsheets are extremely difficult to update and maintain current data effectively, plus they normally cannot be interfaced directly with enterprise and customer relationship software. Conducting quality assurance on the calculations and models is also difficult and based on a study by a leading international consulting firms over 90% of spreadsheets they audited contained significant errors. These errors led to the loss of millions of dollars.
Comparison with Standard Inventory Management other or Control Systems
Almost every inventory solution is a transaction (accounting) type system. This means they keep track of the physical movement of items on and off the shelf. These are “dumb” systems, meaning they are static and cannot intelligently determine what to stock, project demand, or create a complete replenishment plan. These systems are based on 40 year old plus, methods using ABC as the only part classification technique. They do not have leading-edge Exception Management capabilities which provide "alerts" to the User for unusually occurrences.
What Inventory Management Software can do:
• keep basic part information like: part number, description, cost, dimensions, etc.
• track parts movement: received, on order, on shelf, removed from the shelf, etc.
• provide a basic reorder point and min/max settings
• record the different bin locations where parts are stored
• provide an order for new parts needed, using standard reorder point, min/max, and safety stock
What Inventory Management Software cannot do:
• provide a system generated forecast or offer multiple advanced forecasting methods
• manage repair parts and their repair cycle (reverse logistics)
• provide an optimal inventory mix to improve service level while reducing cost
• offer multiple stocking and reordering policies
• manage parts specifically required for PM (preventative maintenance) schedules
• help to reduce overstock and excess part inventory
• manage by exception and provide key user alerts.
What Advanced Inventory Planning Solutions CAN DO:
• forecast parts demand with multiple models appropriate for different demand patterns
• plan for unlimited part and location combinations (scalable)
• provide advanced calculations for calculating shelf stock and reorder points
• calculate the optimal mix based on dynamic demand changes
• provide time phased plans and order for both new and repair items
• manage by exception and provide alerts to the planner
• identify overstock and excess inventory and provide redeployment strategies
• plan parts for preventative maintenance schedules
• multi-echelon or theatre planning - can plan at every stocking level both real and virtual
(from master warehouse to stock kept with a field or service engineer)
• plan part life cycle, substitutes and supercedes, and end-of-life parts
Combining Transaction Systems + Advanced Planning Solutions
Advanced planning solutions do not replace the existing transaction systems. Instead, they are designed to complement and improve existing software. The best of all worlds is to add an advanced planning solution to an existing transaction system. This provides a more complete, robust system that dynamically plans based on what is happening now and projected for the future. Download our free whitepaper to find out more!
The vast majority of companies that own an inventory invariably use spreadsheets to control, manage and report. The types of companies vary from manufacturing, to wholesale distribution, to retail, to aftermarket services, to maintenance and repair operations. And this is true geographically and for companies from the very small to the largest. So why the fascination with spreadsheets?
I most cases, companies already own the software as part of a suite or as already installed on the computer they purchased. They are relatively low cost and have an abundance of features that make them attractive. It is also a case of “you don’t know what you don’t know”. Meaning, people are unaware of the availability of easy to use affordable, automated inventory planning software.
The dangers inherent in spreadsheets are:
Lack of Control
How does optimizing your inventory planning impact your savings?
Advanced inventory planning and optimization software in the cloud not only automates the entire planning process, it dramatically increases the positive cash flow of a company. By smartly reducing inventory investment, reducing stockouts, decreasing expedited shipping costs, and reducing planning time all contribute to more available cash. Add to that increased sales and productivity and the gains will also lead to an improved competitive advantage.
Greener Inventory Planning & Optimization
Complex Environment Creates Inventory Challenges
Inventory management has become more challenging in today’s complex and competitive business environment. Yet many companies are still maintaining inventories manually, and performing complicated computations using spreadsheets and point solutions. Keeping track of reorder points can become an overwhelming task as businesses grow. And standard spreadsheets offer little help in driving down costs and improving revenues because they are time consuming and frequently contain multiple errors. Ray Panko, University of Hawaii compiled data from numerous studies that indicates up to 90% of spreadsheets contain significant errors.
Where is the money hiding?
It is common to find excess and obsolete stock representing thirty-sixty percent of inventory and to find that five-forty percent of the time customer demands cannot be met (based on Valogix’ experience). At worst, companies lose sales; at best, they must ship items at a premium in order to fulfill orders, further driving down the profit margins.
There is good news on the (inventory planning) horizon
Automated planning tools are designed to remove complexity and improve inventory mix. They dramatically reduce the amount of time required to properly plan inventory. By automatically forecasting, replenishing and optimizing, companies can manage inventory more efficiently and meet the demands of customers and suppliers at lower costs for a powerful competitive edge.
Multi-location planning adds complexity.
Service Parts Planning Concepts
Service or spare parts inventory management is a prime candidate for advanced inventory planning, i.e. service management software. With many parts to manage and a lack of power tools, most companies with parts inventories have too many of the wrong parts. The result is unnecessary inventory expense, while still suffering service-limiting stock-outs.
Section 179 at a glance - New for 2013 & 2012
• 2013 and 2012 Deduction Limit = $500,000
This is good on new and used equipment, as well as off-the-shelf software.
• 2013 and 2012 Limit on equipment purchases = $2,000,000
This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced.
• Bonus Depreciation = 50%
This is taken after the $2 million limit in capital equipment purchases is reached. Note: Bonus Depreciation is available for new equipment only. Bonus Depreciation can also be taken by businesses that will have net operating losses in 2013.
The above is an overall, "simplified" view of the Section 179 Deduction for 2013. For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing, please read this entire website carefully.
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).