Inventory Optimization doesn’t mean Out-of-Stock or Over-Stock
Just last week, I was talking with a retailer who wanted to know how his optimized inventory resulted in overstock and out-of-stock at the same time. I hear this question all the time and the answer is simple. They don’t have a true demand driven optimized inventory because either they don’t have an inventory optimization solution or their solution isn’t really optimizing their inventory.
Inventory Optimization needs accurate Demand Forecasting
Many times if we optimize one thing it is to the detriment of something else. However, for successful inventory optimization you need a demand forecasting and inventory replenishment solution that can optimize your inventory across the supply chain. This means lead time forecasting; DC to DC transfers, DC days processing, internal transfers, the entire pipeline from Purchase Order to consumer purchase must be considered in the review process. Inventory Optimization should increase your profits by calculating the most economical way for you to flow inventory (EOQ) and minimize costs.
Inventory Optimization – Just Show me the Money
You might be asking why do I need Inventory Optimization? I will let you in on a little secret – to increase your profits and cut your costs. A truly optimized inventory results in lower inventory and lower lead times by creating a balancing act of acquisitions cost, carrying cost, vendor minimums, price breaks, gross margin, sales dollars and service goals. Retailers need to review, measure and act on their inventory every day.
It’s Complicated, Inventory Optimization doesn’t happen in Excel
Over the next few weeks we will take a look at the pieces to successfully optimize your inventory including: acquisition cost, implications for a true acquisition cost that includes vendor minimums, pack size and warehouse constraints, carrying costs and an exploration of factors that impact profits like lost sales and consumer perception. We welcome your comments on inventory optimization and the impact it has in your organization.
Next week we continue our series; to learn more today, visit our pages on Inventory Optimization.
For more information on how Data Profits can ‘Tighten the Links in your Chain™’ and help you meet your service goals, pleasing your customers, vendors, and bottom line check out our demo.