The COVID-19 Pandemic is presenting a serious challenge when it comes to inventory forecasting, planning and replenishment. Cases range from plummeting sales and closed businesses to unprecedented peak sales, to extended lead times, to short or unavailable stock and raw materials. Further, the general consensus at the moment, is that the immediate impact as described above will be followed by either an upturn or return to more normalized levels and a gradual return to available stock. Then, there is the unknown question of if the virus will return in the fall/winter and what kind of impact will be felt then.Read More
Inventory Planning Blog
But not for primary forecasting and replenishment planning
Reports and spreadsheets should be used to provide a basic level of information. However, many companies and planners use reports & spreadsheets to completely manage their inventory. To understand the use of these tools on effectiveness and efficiency in inventory planning let’s explore each one independently.
Many ERP and accounting systems have many standard reports that provide useful information. Usually, however, a company will create or build custom reports either in-house or through their 3rd party IT provider (Value Added Reseller – VAR). OK, so this may help because it provides a level of detail that a company or planner feels is necessary to better manage the inventory.
Assume your outside IT firm builds the report. It costs $5,000 to develop. Let’s also assume it is refreshed, updated, each day. Now what? This is static data and yes it is current but it just sits there and provides no efficiency for the planner. The planner must review and decide what the data suggests and what to do with the data.
But the real cost is much higher than the cost to develop the report. Every report, like spreadsheets must be maintained. Much like a car, the purchase price is just the beginning. Hours of a planner’s time are spent pouring over the results to make decisions. You need to count those hours as an associated cost. So, if a planner is paid say $45,000 per year, plus taxes and benefits the total annual cost is over $50,000. If 35% of a planner’s time is spent reviewing just the reports to manage the inventory, then the first year cost is $5,000 + $17,500 = $22,500. That is some expensive report. Are you getting your money’s worth? You still may not be done.
Most people who have reports will export the data from the report into a spreadsheet so they can better manipulate the data. Here is where the fun comes in.
The data from the report is now in the spreadsheet that you spent countless hours creating. The formulas in the cells calculate the numbers you need to evaluate your inventory and plan out the replenishments required.
The dangers inherent in spreadsheets are:
1. Lack of Control
2. Errors from:
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!
For: E-Tailers – Wholesale Distributors – Retailers – Manufacturers – Aftermarket Service Companies – Maintenance and Repair Operations
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.
Tags: Inventory Planning, SAP, SAP Business One, inventory optimization, Forecasting Inventory, advanced inventory planning solutions, cloud computing, Demand Planning, replenishment planning, Wholesale Distribution, Supply Chain, Partner Awards, Valogix, inventory management
Happy New Year! 2012 brings the promise of improving global economies. Balancing short term resilience with longer term needs is what is needed now. Reducing costs, buying less, increasing productivity, improving cash flow is important, and to keep these inventory objectives balanced and in perspective you need an efficient way to optimize these important business demands. Improve your competitive advantages responsibly and efficiently with inventory planning optimization solutions. Waiting until its too late in your ordering cycles will invite your customers to investigate other opportunities, and that can happen by making the reduction of the wrong item at the wrong time.
If your company tends to reduce items with the highest investment because it creates a larger reduction faster, what it actually does is creates potential stock outs, higher backorders and increased expedited shipping – and, even more importantly, customer dis-satisfaction. We all know that when customers are unhappy they become former customers. Randomly cutting inventory has been proven time and time again to be the wrong strategy as does overstocking your inventory.
Tags: Inventory Planning, SAP Business One, cloud, inventory optimization, SaaS, Forecasting Inventory, advanced inventory planning solutions, replenishment planning, IBM, Wholesale Distribution, Supply Chain, manufacturing
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.
Tags: Inventory Planning, SAP, inventory optimization, Forecasting Inventory, optimization, cloud computing, NetSuite, Demand Planning, replenishment planning, Wholesale Distribution, Supply Chain, inventory management
If you're still using spreadsheets of yesteryear to plan your inventory, you are doing too much work. Constantly updating spreadsheets and trying to remember where you made changes leads to errors, resulting in stock outs and over-stocks – and costs you time and money.
In our fourth installment in our series, we explore ways to improve replenishment planning.