You experience inventory issues on a regular basis – Out of Stocks, Overstocks, Bumpy Cash Flow, and Lost Sales, happen in your retail business, some weeks have a multitude of these issues at the same time. What is the solution, is there a single answer or at least a solution that solves a large percent of the problems? What about Inventory Optimization?
- Out of Stocks – Supply Chain Issues
- Overstocks – Operation Problems
- Bumpy Cash Flow – Planning & Finance
- Lost Sales – Customer Service Issues
This is an excerpt from: “Four Familiar Inventory Troubles – Which Do You Want to Overcome?” in the September 2013 edition of Retail Value Chain Federation’s monthly newsletter. CLICK HERE to see the complete article. This is part 4 of a 5 part series on Demand Forecasting and Inventory Replenishment.
Inventory optimization has been made to sound like the “end all” answer to these four profitability issues. Is it a state of nirvana for retailers that, if reached, magically removes all inventory issues? What is inventory optimization and is it truly the “final answer” to your inventory planning and operation execution issues?
What is Inventory Optimization
Is inventory optimization a goal, a plan, a piece of software, or an industry term? We blame poor inventory planning as the cause for many of our business problems. Is inventory optimization then the “Holy Grail” of inventory deliverance? In a Utopian inventory world, an optimized inventory delivers the right quantity of products at the right locations; fulfilling all customer demand and exceeding revenue goals – with no inventory left on the shelf and deferred billing from suppliers.
Well, unfortunately for the dreamers in the audience, inventory optimization in the real world is an approach, a journey; a business philosophy to improved operating results. It requires data, educated and trained people, and some fairly sophisticated software and analytics to deliver. Inventory optimization can provide significant improvements, if properly executed. Start your journey!
Do You Know the Difference between Sales & Demand Forecasting?
Step 1: Consider using a true Demand Forecasting software package. Inventory optimization starts with effective demand forecasting for each of the demand types: regular, promotion, event, closeout, and lost sales. Many systems lack the technology to break out sales by demand type and then forecast based upon each type of demand. Promotions and events need to be fully integrated into the demand forecast, but also separated for effective forecasting and inventory planning. See our blog: Differences between Demand Forecasting and Sales Forecasting for Inventory Replenishment. Two key pieces of information you need to know about your current system are:
- Which forecasting method does your system use?
- How can you use that knowledge to drive better results?
Get your Lead Time Variance in Line
Step 2: Lead Time Forecasting is needed to translate past receipts and expectations into new order dates, impacted by service goals and current and expected lead times. This can be tricky as lead time variances change and demand forecast have seasonal and market trends being applied or removed as all the pieces start to move.
While many systems report on supplier lead time variance and fill rate, these measurements are not translated into ‘buy on this date’ decisions. Remember, the lead time unit of measure is time; to understand units to support sales, the demand forecast and lead time variability must be integrated with a system to create the purchase order on the right date. Most systems use the plan to define the purchase date and then create replenishment orders. Often that model reacts too late to sustain the flow of inventory to support service goals. The results of these actions are out of stocks, low service, and lost sales.
Subscribe to our Blog – Four Inventory Issues Part 2 next week
There are four things to review when solving these types of inventory issues. Next week we will list the other two and include additional ideas for your review.
Finding Your Perfect Inventory
Inventory optimization can deliver strong results for your business – we have seen this with many customers. Retailers that have made progress towards successful inventory optimization have quiet Monday mornings each work week. Planning groups have only three or four reports on their desks and their phones are not ringing off the hook. They work proactively and less reactively managing their inventory. Their quiet confidence and increased productivity tells us that they have made significant progress in their journey of learning how to manage an optimized inventory.
An Inventory Optimization solution can rapidly impact the four inventory issues of retail – out of stocks, overstocks, bumpy cash flow, and lost sales. These solutions offer accurate demand forecasting and inventory replenishment systems, improved collaboration and deliver user friendly analytics; they provide improved customer service, increased sales, along with lower inventory and logistics costs.
These systems install rapidly and deliver high functionality at a fraction of the costs of legacy systems. Start asking a new set of questions and impact your bottom line.
Plan a Perfect Inventory for Profit
Contact us for a free review of your Inventory Optimization & Demand Forecast calculation opportunities and issues. We have the experience and tools to help you improve your business. Also, request a demo to learn how our iKIS software can reduce out-of-stocks and increase sales, installed in 30 days at a fraction of the cost of legacy systems. ‘Are you ready to tighten the Links in Your Chain? ™’
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