Tag Archive for: Inventory Optimization

Is Your Inventory Optimization Solution Actually Leading to Profits?

The Inventory Optimization link in your chain is a critical piece to increase profit. How much inventory do you carry to meet future service goals without overstock and high carrying costs? How often should you reorder, acquisition costs like inventory carrying costs will reduce profits. Your inventory optimization solution needs to balance how much to carry, how often to reorder, demand rates, gross profits, pick quantity, supplier minimum, and business rules with a methodology (the math) that maximizes your profits while minimizing your risks.
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Inventory Optimization is a link in your chain that is often misunderstood and misquoted at inventory meetings and sales presentations in many businesses today. Inventory Optimization issues are always easy to find – Buyers, Sales People, and inventory managers of high-volume inventories often complain that there is too much overstocked inventory of slow selling products and not enough of the inventory that is in demand. Sadly, the unnecessary inventory is tying up working capital and taking up much needed storage space. This is a major issue that lowers profits, service attained and customer opinions.
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Inventory Optimization: Balance is Key for a Success

How can you ensure the highest levels of success? Merchandisers and Buyers are executing promotions, product assortment changes, and new product roll-out events throughout the year. Those events affect the flow of product into your DCs and stores. They can also affect vendor fill rates and lead time performance. The volume of product purchased from a vendor also changes with those events. Unless you monitor and adjust to those changes, you will lose margin and sales. Inventory Optimization solutions provide value by monitoring the on time performance and volumes of your suppliers and allow you to make adjustments along the way.

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You might be asking why do I need Inventory Optimization? – 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.

Inventory Optimization doesn’t mean Out-of-Stock or Over-Stock

Just last week, a retailer wanted to know how his optimized inventory resulted in overstock and out-of-stock at the same time. We hear this question all the time and the answer is simple. This retailer doesn’t have a true demand driven optimized inventory because they don’t own an inventory optimization solution or the solution they are using doesn’t really optimizing inventory, or they don’t use the software they own preferring to rely on holding their thumb up to feel which way the wind is blowing among other old-school tricks.
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