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Inventory Optimization: Is Your Acquisition Cost Off-Balance?

Inventory Optimization – Do you know your Acquisition Cost

In today’s tight economy, retailers like you are constantly looking for the best and most profitable ways to grow their business. Last week, we talked about inventory optimization and how a truly optimized inventory results in lower inventory and higher profits by managing a balancing act of acquisition cost, carrying cost, vendor minimums, price breaks, gross margin, sales dollars and service goals. This week we take a closer look at acquisition cost and the role it plays in the balancing act of inventory optimization.

Acquisition Cost and Demand Forecasting

I spend a lot of time with retailers, and every executive I meet is interested in accelerating their sales growth while improving their distribution capability at the same time. One often overlooked piece of the puzzle is managing the Acquisition Cost.
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Has Inventory Optimization Left you Out-of-Stock and Over-Stocked?

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.
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As we discussed in part one of our Lead Time Forecasting series, time is money and an accurate lead time forecast is critical for your business.  Lead Time forecasting is considered the time from when a Purchase Order is placed until the goods are ready and available to sell or ship off the shelf.  This week we take a look at how a lead time forecasting impacts your customers

Does Lead Time ruin your Customer-Centric Sales Environment?

Are you like the many retailers focused on delivering a customer-centric experience?  Amazon.com leads the industry in providing a true customer-centric experience that is focused on delivering the best possible customer experience and believe that by delivering this experience its business will continue to grow.  Based on the customer-centric model, let’s take look at how an inaccurate lead time forecast can have a real impact on your customers’ experience.
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Lead Time Forecasting: Are Your Shelves Overstocked or Out-of-Stock?

Time is money – making lead time forecasting critical for your business. Over the next three weeks we will take a deeper look at lead times and the impact they have on today’s retail market supply chain.

A lead time of 60 days or more can become the largest influence in your safety stock due to variations in the actual lead times for receipted goods. The variations between actual lead times and also the differences between actual and expected lead times will need to be offset with the use of additional safety stock which lowers your profit margins significantly.

Do you find yourself looking at what inventory you have on the shelf while you wait for the slow boat to cross the Pacific? Do your suppliers provide an estimated lead time that quickly comes and goes and leaves you with overstock or out-of-stock? A recent study of a Top 100 North American Retailer showed lost sales of over a million dollars in gross margin due to inaccuracy in their lead time planning.

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In today’s world of technology savvy consumers and big data, retailers must find an efficient way to merge business intelligence, forecasting and customer insight into usable information that creates results.  We recently worked with a top 100 consumer electronics retailer on an installation of our  iKIS™ solution which resulted in improved forecast accuracy from 16.9 percent to 98.2 percent with return on investment realized in the first 60 days.

Unlike legacy systems in the market that have simply upgraded to a web interface, our software is built to work online, keep data secure, analyze the huge amounts of customer data at high speeds and translate the analysis into consumer insight – demand forecast.

Why Does Forecast Accuracy Matter?

Several studies (Gartner, Dr Mentzer, others) consistently show that forecast accuracy delivers a 15% shareholder value increase. The problem is many legacy software apps just do not deliver good forecast accuracy. Using a recent example lets look at the problem and the opportunity as many companies have the same issues and opportunity.
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As founder and CEO of Data Profits, welcome to the Data Profits Blog. Our goal is to provide you with meaningful insights into inventory management, helping you identify opportunities to improve your supply chain and increasing profits. Our solution, iKIS (“Internet’s Keeping Inventory Simple”) provides a SaaS-based solution that retailers trust with one of their largest investments — their inventory.

Data Profits’ BI tools deliver consumer insight and demand forecasting at new levels of detail and accuracy. Merging BI analytics, demand forecast and planning tools with vendor and buyer collaboration provides clear, accurate, and extensive knowledge of consumer buying habits allowing retailers to reduce inventories but stay in-stock with the right products at the right location, delivering increased sales for Data Profits’ customers.

 

One recent successful implementation with a top 100 retailer resulted in market leading outcomes:

  • 25 percent inventory reduction
  • More than 3 percent same store increase in sales and gross margin
  • More than 90 percent forecast accuracy

All in less than 90 days.
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