Inventory Planning Blog

Overview:

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.

When we talk with people who want to improve inventory management at their company, we like to find out what they have accomplished already.  The “stages of planning growth” model helps classify their situation and indicate what should be their next step to improved inventory planning.

Invariably, there are at least four distinct stages.  Companies must pass through each one in sequence to properly improve their policies, practices, and systems.  Each stage of improvement brings performance improvement in customer service and inventory reduction.

In Stage 1, the company doesn’t have a good idea of how much inventory it has and where the inventory physically resides.  If their enterprise system tracks inventory, it is highly inaccurate.  Warehouse organization is messy and shrinkage is problematic.  Getting stock from vendors and shipping orders to customers is primarily a costly expediting exercise. Spreadsheets and maybe a few reports are used.

To progress to Stage 2, there must be a strong desire for inventory accuracy and efficiency.  A cycle counting program (randomly sample actual SKU inventories and compare them with system numbers) provides an excellent framework for the accuracy push.  Warehouses need to be cleaned up and shrinkage needs to be addressed head-on, with causes and remedies identified.  Most companies today have already reached Stage 2, because companies in Stage 1 tend to be blown away by their competition. Also, customers are dissatisfied due to the lack of correct and adequate stock. Excess inventory of the wrong items tends to be relatively high at this stage.

Companies at the this stage usually utilize an Enterprise Resource Planning (ERP) or Accounting system from vendors like SAP, Oracle, NetSuite, Sage or from other vendors.  Among its many functions, the system maintains inventory status.  When current inventory of an SKU falls below a minimum level, the system orders enough to get up to the maximum.  Setting the min and max levels is mostly a manual, painful process, so it is not done often—perhaps once per year.  As a result, Stage 2 companies have a relatively static approach that does not respond to dynamic changes in demand or supply.

To progress to Stage 3, the company recognizes the need for solid financial and customer service improvements. They also realize that dynamic demand responsiveness is critical to success. Sophisticated enabling technologies like those offered by Valogix fit the bill. These solutions automatically review each SKU’s past demand history, forecast future demand, set optimal stocking quantities, and recommend the amount to order.  Most companies are using a spreadsheet and reports to do this, but quickly find their results are too static and time-consuming and too error prone. An advanced automated approach is desired.  

Stage 3 companies who have implemented a good set of dynamic policies and tools can still improve their performance.  Inevitably, their inventory management has key cost and service level drivers that can be optimized for maximum value effectiveness.  That is, an automated process needs to search through a large number of possibilities in order to select the best.  Here are some examples:

Why it pays to invest in inventory solutions

There are many reasons or excuses for not upgrading to a modern, easy to use advanced inventory tool.  Which Category do you fall in?

Discover an affordable, seamlessly integrated inventory planning optimization solution to SAP Business One for small and midsize businesses. A solution that frees up your resources (including cash), reduces losses from obsolescence, and increases service levels. The tools you need to forecast, plan, and optimize inventory, manage your business more efficiently and meet the demands of customers and suppliers are powerful and affordable.

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.

Did you know that certain inventory planning solutions are easier to use than ever? 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, take months to implement and are generally not affordable or usable by SMBs.

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’s 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 (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.
Automated planning tools work in conjunction with ERP software to improve the inventory planning processes. Automated tools consider several factors—budget, carrying costs, planning horizon, leads times and more—to create an optimal stocking quantity. The entire planning process must be in sync to create a plan that works—from forecasting to setting stock and calculating replenishment levels, and from purchasing to production.

How advanced planning solutions work

1. They are dynamic, changing as business   condition change.
2. They account for many variables, ensuring the right coverage without over/under buying.
3. They calculate an optimal quantity, saving money without sacrificing service levels.
4. They eliminate the need to manually review every item and manipulate data.

Inventory planning is a competitive advantage
Advanced inventory planning and optimization not only automates the entire planning process, it also dramatically increases positive cash flow. Smartly reducing inventory, mitigating stockouts, decreasing expedited shipping costs as well as planning time mean less money going out, and more money to invest in the business. Increased sales and productivity gains add to the competitive advantage.

Using planning solutions in the cloud
We deliver our 100% web-based solution as a “virtual appliance.” By wrapping all the technology into a  virtual appliance, customers have the ability to use the latest in technology quickly, thanks to a rapid implementation process. Using the software via SaaS not only frees up cash and resources, but delivers an up-to-date product without lengthy upgrades and expensive hardware; all that is needed is the Internet.

The benefits of cloud-based planning
Unlike solutions installed on premises, cloud-based planning offers significant benefits to both users and companies.

• Multi-user platform (Linux, Windows, Unix)
• Browser UI
• Enhanced Security

Inventory optimization has big payback

• Reduced inventory investment by at least 20%
• Reduced expediting and emergency shipments by 35%
• Improved planner productivity by reducing planning time by 60% - 80%
• Ability to control and reduce replenishment spending by 15%
• Stockouts reduced by 12% - 22%
• Increased productivity by 5% to 10%
• Improved employee and customer satisfaction