Inventory Planning Blog

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.

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.

Optimize Your Inventory Planning

Web based inventory software for business is becoming more plentiful. Solutions specifically built for the web are in great demand around the world. Take for example, Australia and New Zealand, which are experiencing not only increased demand but an increase in the number of available web based inventory software applications.

Spare parts have an important life cycle

The graphic below shows the important milestones in a part’s life cycle. These have an impact on inventory planning for each item.  This section examines how those milestones impact parts planning.

Multi-location inventory planning adds complexity.

Companies approach their parts inventory planning in many different ways - from seat of the pants guessing, to team collaboration, to spreadsheets that may invoke more team collaboration and manual changes, to forecasting software and some to advanced planning solutions. The more parts and locations you need to plan, the more complex.