Frequently Asked Questions

1. What does Inventory Strategy Manager do?

Inventory Strategy Manager enables the right products to be stocked in the right locations in the right quantities. It analyses demand (or forecast/schedule shortfall) and optimises safety stock/ reorder level & order qty/ min & max level, which are then returned to the host ERP/ sales & distribution system for use in the reordering/ manufacturing process.

Your business may hold stock in multiple locations and for different purposes, all of which should be optimised:

• Finished Goods
• Raw Material/ Components
• Vendor-Managed Inventory/ Consignment Stock
• Safety Stock for Schedule or Forecast Shortfalls
• MRO/ Maintenance Stock

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2. Why does my business need it?

We want to maximise product availability while minimising inventory cost.

This trade-off succumbs to the law of diminishing returns where the increase in service level diminishes with additional stockholding. Furthermore, depending on the volatility of demand, this trade-off varies by item. We need to be able to analyse the demand and forecast the effects of our inventory strategy. Inventory levels and replenishments can now be aligned to business targets for stock availability and stockholding cost.

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3. What are the benefits over a 'weeks of stock' calculation?

We can actually choose the service level, rather than guess at it. Over the duration of the replenishment lead time, some products will have consistent demand, while others will have a wider spread of demand quantities and occurrences; given the same average demand and lead time, the min/ reorder level needs to be higher for the wider demand-spread products to achieve the same service level. See example below:

Both products have the same average monthly demand of 100 units, but require different min/ reorder levels to achieve a 98% service level. This demand spread is measured by standard deviation and enables us to select the desired service level; average does not measure demand spread, hence, a 'weeks of stock' calculation prevents us from identifying the different demand spreads across our product ranges that are the key to determining service levels.

In this example, if we set the min/ reorder level to an arbitrary lead time plus 3 weeks for a value of 170, the 3 week buffer of 70 units is 32% too high for the narrow demand-spread product, but 34% too low for the wider demand-spread product: the same inventory policy is inadvertently applying different service levels. If the min/ reorder level fails to account for different replenishment lead times, and is set at an arbitrary 7 weeks, say, then the situation is exacerbated. This methodology enables an Inventory Strategy Manager solution to improve service levels and decrease stockholding at the same time. Other factors accounted for include:

• Demand trend and seasonality
• Management of spiky, intermittent and exceptional demand
• Lost sales through stock-outs
• Kit demand and product supercessions
• Supplier delivery performance and lead time analysis
• Calculation of economic order quantities

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4. Why should I choose Inventory Strategy Manager?

Inventory Strategy Manager enables a multi-dimensional inventory policy, whose bias towards higher service levels or lower stockholding is easily adjusted. The methodology is powerful, yet easily understood, and does not require an inventory expert to use. Furthermore, its speed of process is fast, saving time and removing the barriers to frequent review.

Its flexibility connecting to data means that a new ERP/ sales & distribution system or a new warehouse can be easily accommodated without disruption.

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5. How does it work?

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6. How much demand will a service level actually satisfy?

One element of an item's Drill-Down Report is the stock-out risk. The Demand Analysis (part screenshot above) plots the item's moving demand¹ (dark blue) against the reorder level (purple). Where the moving demand is greater than the reorder level, there is a risk of stock-out. Trade-off service level against stock value until optimised.

1. Moving demand: total demand occurring between this date less the lead time and this date. (The total demand occurring within the lead time at this point.)

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7. What is the difference between ISM100, ISM200 and ISM300?

All versions have the same inventory optimisation functionality, but differ on the type data source to which they can connect:

Data Source	ISM300	ISM200	ISM100
Enterprise Databases e.g. Oracle, SQL Server
Desktop Databases e.g. Access
Spreadsheets e.g. Excel

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8. How is the revised information reloaded into my system?

Inventory Strategy Manager seamlessly interfaces with your ERP/ sales & distribution system, automatically uploading the revised safety stock/ reorder level & order qty/ min & max level at the click of a button. Time savings are large compared to analysing and updating items individually.

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9. How does Inventory Strategy Manager connect to my system?

Inventory Strategy Manager has a flexible, rapid-connection interface which connects to your company's item and demand data. The choice of connection method is decided by the customer:

ERP/ Sales & Distribution System
These systems generally use an enterprise database like Oracle or SQL Server and it is beneficial in terms of data security and implementation speed to utilise their in-built data tools.

A second database is created, often on the same database server, which is populated with the item and demand data for analysis and to which Inventory Strategy Manager connects. An overnight SQL script runs, which refreshes the second database's data and updates the safety stock/ min & max levels etc. within the main system's database.

Data transfer via the main system's data import interface or text files can also be accommodated, as can storing data on a different database altogether.

Small Database/ Spreadsheet
Inventory Strategy Manager would be connected directly to the database/ spreadsheet. An example would be a vendor-managed inventory solution managed by small database.

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10. What extra hardware is required?

None. Inventory Strategy Manager is installed on a desktop PC or central server (running Windows) and accesses a database/ spreadsheet running on either a server (operating system independent e.g. UNIX, Linux, Windows) or the same PC. It is most likely you will already have any necessary hardware.

Minimum system requirements:

• Pentium PC (100MHz or higher)
• Windows98/ NT4 onwards (latest service packs)
• 64MB RAM (128MB recommended)
• 100MB free disc space

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11. How much will it save and what is the pay back period?

Savings come in 5 parts:

1. Reduced inventory and obsolescence, improving cash flow and profitability
2. Higher stock availability: reduced stock-out costs - lost revenue, order-expediting, express transport
3. Efficient stock replenishment: economic order quantities which balance cost of ordering against stockholding cost
4. Time savings: faster inventory optimisation process & automatic update. Removes barriers to frequent review.
5. Consistent process throughout business

The pay back for a project is well inside two years. The pay back varies by company, but analysis of the current and forecasted inventory position will give an accurate estimate.

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