Inventory Optimisation
- Visual Demand Analysis and Inventory Forecasting
- Variable Service Level Strategies
- ABC Analysis & Inventory Stratification
- Economic Order Quantities
- Obsolescence Risk Analysis
- Exception Reports and Alerts
- 'What If' Scenario Modelling
- Easy-to-Use Graphical User Interface
Strategic Planning
Central to every inventory optimisation project is balancing the trade-off between service levels and inventory investment, which succumbs to the law of diminishing returns: additional stockholding yields a decreasing improvement in stock availability and there comes a point where it is more effective to satisfy such exceptional demand by other means. However, this trade-off is affected by several factors, which means each item succumbs at a different point: an Inventory Strategy Manager solution accommodates these factors and maximises return on inventory investment.
Lean Inventory
One-dimensional inventory policies tend to suffer significant stock-outs as well as high stockholding because they fail to account for the different factors, like demand and supply volatility, which impact the stockholding to achieve a given service level. The result is that the inventory policy tends to be based on the 'problem' products, which will unnecessarily inflate inventory elsewhere. An Inventory Strategy Manager solution enables a multi-dimensional inventory policy, which can be more closely tailored to these different factors, ensuring inventory is lean.
Identifying the Portion of Demand for which to Stock
This fundamental question might seem obvious but is often overlooked. In many cases this will be total demand - a distributor supplying ex-stock with no customer schedules, for example. However, where there is forward visibility of orders beyond the lead-time or customer schedules are supplied, then there will only be a portion of demand which is undetermined.
An example would be a manufactured product whose nominal 1 week lead-time is determined by the delay until its next weekly production slot. Customers place orders in the week before they are required and a production plan is drawn up at the weekend, which will satisfy these known orders. However, some orders arrive at late notice and require delivery within the same week. If the product's weekly production slot has passed, then the production plan needs to be altered to accommodate this late-notice order, which is disruptive and costly.
A safety stock to cover this eventuality would be effective if the problem occurs regularly. Conversely, some products may never suffer late-notice demand, in which case a safety stock would be redundant. The key is determining the exceptionality of the late-notice demand and balancing the trade-off between safety stock utilisation and expediting.
Customer Schedules and Forecasts
Customer schedules and forecasts can cause similar problems where the schedule quantity at the lead-time under-forecasts the eventual demand, leading to a shortfall. This shortfall increases further if other customers demand this product but do not supply a schedule. The schedule should be retained because the customer is best placed to forecast any future demand, but a safety stock to cover the shortfall element would alleviate the expediting that would otherwise occur to meet demand. The key in both these cases is that the late-notice demand or schedule shortfall are not directly related to the overall level of demand and to set a safety stock on such a basis would be ineffective. See Schedule and Forecast Shortfall Solutions for further information.
Multiple Stock Locations and Multi-Echelon Distribution
Local stock availability, fast delivery and/ or vendor-owned consignment stock are core requirements for many businesses to compete within segments where service levels far outweigh stockholding cost considerations. Even with this service level bias, the determination of the product range and associated service levels in each location warrants careful planning along with the route for stock replenishment.
The stocked product range at a local warehouse or consignment stock location will be based on the local demand but the cut-off for exceptional demand can be much stricter, which will reduce stockholding, as the product is available elsewhere within the supply chain, albeit on a slight lead-time. In terms of supply routes, a central distribution warehouse will stock for its own local demand and that of the other warehouses. Overall stockholding will be relatively low owing to the smoothed effect of the amalgamated demand, where demand becomes far less erratic. The other lower-echelon warehouses can then base stockholding on a shorter inter-warehouse transport lead-time, which will reduce stockholding compared to replenishment direct from the supplier.
A Multi-Dimensional Inventory Policy
Inventory Strategy Manager enables a multi-dimensional inventory policy, which can be tailored more closely to each individual product's requirements. The crux of the solution is balancing service levels against stockholding, but high service levels of regularly sold items will yield higher profits and customer satisfaction than high service levels of seldom sold items for a given inventory investment. These fully adjustable service level groups can be cross-analysed with the ABC data for profit or sales. Inventory Strategy Manager models the inventory policy, forecasting stock value and obsolescence risk, which are investigated using the drill-down functionality to analyse by product group, ABC code, service level group, or down to the product level. A comprehensive set of exception reports identifies products at risk, which enables a fast process. Each business will tailor its inventory policy slightly differently, but Inventory Strategy Manager has the flexibility to accommodate this.
Inventory Optimisation
Inventory Strategy Manager's process is shown diagrammatically below:
Graphical analysis (ABC, service level, etc.) is used in conjunction with inventory forecasts (stock value, obsolescence risk, inventory stratification, etc.) to optimise the strategy, aligning it with the business targets for service levels and stockholding costs. Exception reports and alerts identify items requiring particular attention which are analysed using the drill-down reporting capability and managed accordingly. Sample screenshots of the Pareto/ ABC Analysis Form and Stock Value Forecast Report are shown below:
The Pareto/ ABC Analysis Form |
 The Stock Value Forecast Report |