Making quick and agile decisions is crucial to minimise the impact of the Coronavirus in the supply chain. For this reason, it is important to have a clear focus, be flexible and react quick. To support stock holding companies we have summed up the most important actions that need to be taken to manage your inventory correctly during a crisis.
COMPLETELY UNPREDICTABLE DEMAND AND SUPPLY
The Coronavirus is currently causing an unprecedented crisis worldwide. The uncertainty within supply chains is huge; factories are forced to temporarily close their doors, companies experience significant problems with supply and sales has become totally unpredictable. Supermarkets are noticing a huge increase in sales, as a result of consumer behavior and the closure of bars and restaurants. Simultaneously DIY shops like Bunnings and nursery’s see an increase in demand as people are forced to stay home and start projects in and around the house. However, other companies see big drops in sales, or even that sales completely disappears. To get through this crisis in the best possible way, we must act quickly.
CURRENT DECISION MAKING IS NOT EFFECTIVE
With so much uncertainty in demand, the current way of making decisions is not enough. Where before we could meet for weeks to make strategic decisions about inventory management, today we need to decide in less than half an hour. The fact that the departments involved in decision-making work remotely, complicates communication and alignment significantly.
To survive the impact of the Coronavirus on the supply chain , companies will have to make their decisions much faster than before. Key managers and assistant managers must have greater authority to "define" more quickly. Efficient supply chains must be transformed into effective chains of command.
STEPS TO MINIMISE THE IMPACT OF COVID-19 ON THE SUPPLY CHAIN
Step 1: determine the priorities
First we recommend identifying the most important products for your company and which of them will be most affected by the situation. It is extremely important to identify which of these products could run out of stock and are crucial to maintain satisfied customers. In terms of opportunities, which products are now trending or selling more than expected? For example flour and yeast, exercise gear, home and garden items, disinfectants and books are just some of the products which have a high demand. Products in these categories are potential new A products and deserve more analytical attention.
Step 2: protect inventory
When you have identified the products with the biggest risk of scarcity, it is important to take measures to mitigate this risk. Make sure these products are dedicated to customer demand A and are not sold to customer C or worse, to your competitor. This sounds like a very easy measure, however in hectic situations it is difficult to implement. All departments have to be aware of the new business rule and implement it straight away. Sales needs to know what they are allowed to sell and your web team needs to know what products to temporarily remove from the web shop. Furthermore, store managers need to be informed in case any products need to be withdrawn from their stores. In case you have a manufacturing facility there is a risk or running out of raw materials, monitoring critical components is of importance.
Normally these decisions are made at various levels within a company, but these days, they must be made quickly and implemented urgently.
Step 3: secure provisioning
When there is uncertainty in demand it is very important to maintain a close relationship with your suppliers, especially for the items which have a high risk of shortage.
What do we have in transit and what is the estimated arrival date of these orders? Many orders are delayed now, but it is important to agree to realistic delivery times with your suppliers, in order to plan and anticipate. Don't forget to also contact your important (overseas) customers to anticipate for any (delivery) problems.
For important A items it could be wise to check if other, faster modes of transport are available to secure inventory. Even though it is more expensive, the current situation requires drastic measures, especially for A products. In case your suppliers have capacity problems, look for different alternatives.
Step 4: prevent excesses
It could occur that the demand of products, for which you already have too much inventory, completely disappears. It is important to check for which products this leads to a direct problem. If you are overstocked with long-life items it isn’t an urgent problem, but if the items do have a short life cycle, expiration date or are seasonal items extra focus is required. For these items you have to take action to manage the risk of obsolescence. Perhaps your sales team can identify alternative sales channels? Furthermore, don’t forget to cancel open purchase orders and adjust the purchase parameters.
Step 5: deliver alternative products
Several companies are repurposing their production lines to meet the changing demand. For example LVMH adjusted their production line to be able to produce hand sanitizer instead of perfume. Distilleries produce disinfecting alcohol. Hotels are becoming quarantine centers or change hotel rooms into delivery rooms to reduce pressure on hospitals. In case the demand for your products has reduced it might be an option to see if there are any possibilities to change production or your product assortment to meet new demand. As this allows you to (partly) cover operational costs and retain the workforce.
Start with your own Supply Chain
Start with inventory optimisation today. Analysing data to create better forecasts, managing the supply chain in a more efficient way, and being more agile to react faster to the market are all ways that will help you to increase profitability.
By Fleur Smits - Straathof -
- Definition inventory management
In logistics, inventory management is often referred to as the management of the incoming and outgoing goods at a company (by means of planning tools) to make sure materials are available for sale.
It is all about aligning people, processes, and technology to ensure you have the right products, at the right place at the right time.
This might sound easy but can be a rather complex process as there are many inventory management techniques and inventory management types which will be discussed within this blog.
The Intergovernmental Panel on Climate Change (IPCC) reports that warming of the earth is creating a serious treat to the planet we live on. Most likely cause of the problem: carbon emissions. In order to reduce carbon emissions the European Union (EU), United Nations (UN) and many individual countries have introduced or are currently introducing legislation to force companies to reduce their global footprint. In Australia, clear legislation is currently missing. But with the per capita CO2 emissions amongst the highest in the world there is no doubt external pressure will significantly increase.
If government and industry projections for fossil fuel expansions are realised, and if the rest of the world adopts policies consistent with the Paris Agreement, Australia could be responsible for up to 17 per cent of global emissions by 2030. (Climate Analytics, 2019)
DO YOU MANAGE THE CARBON FOOTPRINT OF YOUR SUPPLY CHAIN?
Once companies are confronted with legislation. Or even better, have the intrinsic intention to reduce their global footprint, they often start looking at reducing the carbon emission by optimising the usage of their buildings and fleet of trucks and cars. Forgetting the possibility of investigating and optimising the operational decisions which are made in inventory management, production and transportation. Which is a shame, as this will probably reduce a company’s global footprint with less or no investment needed (Benjaafar et al., 2010).
LEADING COMPANIES REDUCE SUPPLY CHAIN CARBON FOOTPRINT
According to CDP, a not-for-profit charity who helps organisations to manage their environmental impact, carbon emissions in supply chains are on average four times those of a company’s direct operations. Last year CDP awarded 58 companies, who instead of waiting, are taking their responsibility and actively reduce supply chain emissions.
As described above investigating and optimising operational decisions can be done in multiple areas. When looking specifically at inventory management it is all about making the right inventory decisions at the right time, looking at facts instead of gut feeling. Area’s in inventory management to specifically look at are:
Accurate forecasting helps companies to make sure the right products are available at the right place at the right time. Sounds easy but it is a headache for many inventory and supply chain managers.
Often the result of not forecast are overstock and understock situations. Forecasting helps to detect trends, seasonality, volatility, etc. Each industry has its own complexities, some examples:
When it comes to the food industry, of course perishability plays a major role in preventing and reducing waste. When creating a forecast, it is of vital importance to take an item’s shelf life into account. A better and more accurate forecast for these items can reduce waste and therefore unnecessary carbon emissions. This could imply forecasting on a shorter horizon, for instance for fresh products a forecast on daily level should be created.
For items with a very short shelf life, such as fresh products, a different approach can be maintained. For example when looking at ready-to-eat meals, not each meal have to be available until the end of the day, but a forecast on group level can be made. For example: the customer should have the choice between an Italian and an Indian meal. But within the Italian meals, not all sorts of pastas need to be available until the end of the day, as long as at least some meals are still available. This means that the safety stock does not have to be calculated on item level, but on item-group level. This will reduce waste at the end of the day.
The fashion industry is known for its markdowns at the end of the season, and even products are destroyed if they can’t be sold at all. Of course there are many challenges in the fashion industry, such as usually long lead times and short product life cycles with many new product introductions. But still, if seasonal patterns and demographic figures, such as size curve distributions per store, are taken into account, this will lead to more accurate forecasts. These can be used to optimise stock allocations across the stores. In the end this will reduce overproduction, waste and carbon emissions caused by internal transportations because of bad allocations.
Many retailers struggle with managing their promotional process, and having the right stock, at the right place, at the right time. Ending up a promotion with excess stock might not be such a big issue for regular products, but could be a nightmare for one-off items or items specifically purchased for special events. Think about Christmas products that you can’t sell in January anymore. They need to be discounted, stored somewhere to be sold for Christmas next year, or even worse, destroyed. Also here, retailers that anticipate best will eventually have the most advantage.
Not only forecasting is important, but also the way how products are ordered and shipped. If you need a couple of pallets of your supplier’s products every week, it depends on the situation whether it’s optimal to order on a weekly basis. If freights can be bundled with other suppliers so you can still ship a full container, then this might be a good solution. Otherwise, it might be beneficial to order full shipments with a lager order frequency: this will not only reduce costs, but will also lead to a reduction in carbon emission. Of course the type of product determines if this is an option.
Furthermore very little companies calculate the actual costs of inventory. Is sourcing overseas really cheaper? Often companies are forced to buy in big MOQs (minimum order quantities) when they order overseas. Local sourcing might seem to be a bit more expensive at first glance, but will give you more flexibility, shorter lead times, less safety stock, less inventory holding costs, fewer transportation costs and ultimately will also reduce the carbon emissions in the supply chain.
Start with your own Supply Chain
Starting inventory optimisation within your company can directly lead to fewer carbon emissions. Analysing data to create better forecasts, managing the supply chain in a more efficient way (e.g. order full truckloads or combine freights), and being more agile to react faster to the market are all ways that will help you to realise a reduction in carbon emissions.
On Tuesday 5th of November, it’s there again, the Melbourne Cup, or the race that stops the nation. The event has been organised since 1861 and is a great happening for every Australian, and that’s not only because of the race…
Of course wagering on race is a serious aspect for many people, but more importantly, it’s about the glitz, the fashion, and alcohol. Last year Australia’s original major event produced a record of $447.6 million in gross benefit to Victoria’s economy, according to the Victorian Racing Club.
In the last five years, the Melbourne Cup Carnival has grown by over 20%, and this also has its effects on retail spending. The amount spent on retail represents a value of $62.9 million, where the biggest part is spent on fashion items such as shoes, dresses, suits hats, and fascinators. In addition meals, food and beverages are an important part of the expenditures with a value of over $29.2 million.
It’s not only about retail, but it’s also basically the whole economy that benefits from this event. It provides employment for more than 21,000 staff and contractors working for more than 800 companies in the lead-up and during the event.
In order to take advantage, it’s crucial for companies to supply their customers in order to not lose potential sales. This can only be done by having the right stock, at the right place at the right time. It can be very challenging to predict regular demand, let alone demand during a special event. There are many influencing factors that need to be taken into account to create a forecast. A good predictor is to look at the previous year’s event and calculate the realised uplifts in sales. These can be taken into account for this year, considering the growth rates in sales and potential changes in patterns. Especially for items with long lead times accurate planning is critical and will determine the degree of success.
Again the forecasts expect the economic contributions for Victoria’s economy to grow this year, however, we will only get to know the results after the Carnival has taken place. The same of course goes for the winner of the race.
91 percent of women are willing to spend up to $200 on grooming for Melbourne Cup, and 86 percent admit to forking out up to $200 on accessories alone.
By comparison, more than 70 percent of men said they would not spend any money on accessories, including ties, cuff-links, and shoes. Of those men who do, 76 percent would spend up to $200.
Last year’s Cup brought 26,000 international and interstate visitors to Melbourne and injected $155 million into the Victorian economy.
WHAT’S DRIVING YOUR AVAILABILITY LEVELS?
Do you have enough stock to meet demand? Do you have too much? How can you ensure your service level targets satisfy the expectations of the business while still keeping investment in stock under control?
Can establishing more appropriate service levels actually help boost margins?
For stock-holding businesses, availability is everything! However, while the commercial departments within the business may expect 100% availability, supply chain leaders understand that this is neither an achievable nor beneficial target to aim for. Given the risk of obsolescence and the cost of holding inventory, holding excess stock can have a hugely adverse impact on profit margins as well as unnecessarily tying up valuable working capital. But how can you ensure your service level targets satisfy the expectations of the business while still keeping investment in stock under control?
In many businesses, the criteria for setting service levels is often unclear and as a consequence, service level targets are set as a given figure (based on a quick and vague analysis). Furthermore, the quality of the service level is difficult to measure as the effects only emerge after a certain period of time. It is only when an inappropriate service level has a negative impact on safety stock for example, that the service levels are reviewed and quickly adjusted (without any real analysis). Thus, service levels are not reviewed regularly enough. Should this worry you? Only if you think that service levels are not a powerful instrument that has the potential to impact both your profit margins and overall business performance.
Do service levels really have such a powerful influence on your margin? And can a well-thought-out service level provide your organization with a valuable asset?
In our opinion, an optimal service level provides two major benefits:
1) It can be an enormous margin-boost on an article level
2) It can provide you with a huge amount of insight:
- How does your business strategy align with your inventory strategy?
- Are you using the right business rules?
- Are you outperforming your competitors?
When describing a service level in its purest form, you are describing your company’s goal. It is a translation of your business strategy to your inventory strategy: you are deciding to what extent you want to satisfy your customer’s needs based on your stock capacity. However, unless you have a complete understanding of your assortment, how can you be sure that you are making the right inventory decisions? After all, while a slow-moving line may seem like a costly waste of space in your DC, for certain customers, these items could well be the sole reason they buy from your business. Equally, if an item offers only a minimal return in terms of customer benefit or profit, is it really worth investing time and money ensuring that this item is always available?
The service level is an operational translation of the maximum profit you want to generate.
When defining a service level, a number of components have to be taken into consideration including turnover, capacity, customer demand, and cost. These components and their relations can be defined at an article level. For example, knowing that the cost component has an exponential character, an appropriate service level at an article level can result in a large margin boost at an assortment level. In addition to this, the insight into your assortment’s margin performance can also lead to further opportunities to increase margins over time.
Insight into internal processes
The advantage of a well-adjusted service level goes beyond margin increases as a thorough analysis also provides greater insight into your internal processes. By internal processes, we mean the processes that should mitigate both the supply chain factors and the demand chain factors.
A service level reflects your ability to meet demand and the capacity you are willing to use to satisfy this demand. If it is based on the right criteria, it should fit with your company’s strategy and the capacity of its processes. If your capacity is not based on the right criteria, it may not have the desired effects. This occurs because certain supply and demand influences are not taken into account and as a consequence, this can cause a margin decrease. In that case, simply increasing or decreasing your service level can make the issue even worse.
Your service level should be a reflection of your internal processes and the maximum profit they could possibly generate. From the service
level and its effects, we can derive:
- To what extent the internal processes can handle the service level
- What this process input means for every individual article
You should ask yourself which element you want to change; the inventory process or the service level. Either way, one should be adapted around the other. However, there is a risk that you adapt the wrong one, which can lead to a decrease in the quality of both elements. This, in turn, can have severe consequences!
In conclusion, the right determination of your service level can have a considerable effect on your margin, but it can also give you insight into the extent to which your internal processes and their capacity can be improved and aligned to your organizational goals.
How to get started?
The determination of a quantitative fact, based on quantitative data only, requires a formula. The correct determination of a quantitative fact, based on more than quantitative data alone, requires a perspective: the correct perspective.
With regards to the perspective of a service level, we mainly mean the way the cost and turnover components are approached. We should look at the relevant process input for each article. Superficial quantitative criteria like a turnover (ABC analysis) and the cost of safety stock should also be taken into consideration. However, we have to accept that there are also other, less quantifiable criteria in play. For instance; think of the actions your customers will take in the event of stock-outs, is the expected turnover guaranteed? The quantification of the appropriate service level is a company-dependent exercise, in which we should be able to determine the process input per article. Quantifying these criteria is not an easy thing to do. However, it is possible!
Would you like to have a more elaborate guide about how to determine the right service level for your organization? In the near future, we will publish a whitepaper including an extensive exercise helping you to determine your service level in a more pragmatic way
7 DEADLY SINS OF STOCK-OUTS!
Stock-outs are deceptive beasts. Availability issues sneak up on you when you least expect it. However, left unchecked, stockouts have the ability to devour profits margins in just a matter of seconds. So what can you do to avoid them?
In this article, I will highlight the 7 deadly sins you need to watch out for. By taking steps to avert the pitfalls of poor inventory management, you can ward off stock-outs to ensure a more profitable future for your business. Let me elaborate…
Forecasts form the basis for all decision making. And yet, many businesses depend on basic forecasts that lack the sophistication to truly reflect future demand. Without a robust forecast, stock-outs are inevitable. After all, how can you hope to achieve the optimal level of inventory to satisfy your customers with a forecast you can't trust?
2. Supplier performance issues
Are your suppliers always letting you down? Did you find they are always late? Or do your suppliers fail to deliver exactly what was agreed? Supplier performance issues can not be ignored. And they certainly should not be accepted!
3. Volatile demand
Volatile demand is no excuse for availability issues. You must do everything you can to close the gap between forecasted and actual demand. After all, wherever there is a misalignment between supply and demand, this represents a cost. Where demand outstrips supply, the cost is a lost sale. Where supply outstrips demand, the cost is waste. Therefore, be vigilant and remain responsive to shifts in demand!
4. Unreliable data
The importance of good master data cannot be understated! Yet how often does your system tell you have plenty of stock on hand while the shelves remain empty? stock on hand, order volume, minimum order quantities, and lead-times as well all other key master data is correct and up to date, you are making important decisions in the dark!
5. Fire fighting
Do you find yourself fixing problems that should never have existed in the first place resulting in a sub-optimal way of working? After all, when you are putting out fires, you are distracted from doing anything else. The result: more stock outs!
6. Broken Communication
How many inventory issues could have been avoided if everyone had communicated a little better? While operations, sales, finance and management all have a vested in inventory, they often only speak when there is a problem. If everyone in the process was engaged in open dialogue, many of the factors that cause stock-outs would be eliminated.
7. Human Error
Even the most competent of inventory managers make mistakes. Whether these mistakes are made in a random moment of madness or are the result of poor knowledge, it only takes one missed or short order to impact availability!
COMMIT THESE SINS AT YOUR PERIL!
It’s all too easy to succumb to the sheer complexity of modern supply chains. However, you must avoid these 7 sins at all costs.
After all, stock-outs not only have a direct impact on sales, they are often wrapped in hidden additional costs. As highlighted by the Association for supply chain management, the consequences of a stock-out don’t end there:
“Not only is there the cost of losing out on a sale, but there is also often an additional cost associated with having to process a backorder as well
an administration cost to review the item and place another order.”
And this is all before you factor in the long-term costs of losing a customer!
IMMACULATE INVENTORY MANAGEMENT WILL BE YOUR ONLY SAVIOUR
But what can you do to mitigate the risk of stock-outs?
In reality, it will never be possible to avoid stock-outs altogether. There will always be some factors that you cannot foresee. However, there are steps you can take to drastically reduce stock-outs.
Given that poor inventory management is the common factor in all 7 of these deadly sins, this is your starting point on your optimisation journey. The goal here is all about finding the perfect balance between working capital, operating costs and the optimal service level.
But to keep stock-outs at bay, you not only need robust process-based tools that support effective decision making, but your team must also have a complete understanding of how these decisions will impact the wider business.
SLIM4: SAVING YOU FROM STOCK-OUTS
Here at Slimstock, we help 1000's of businesses to maximise customer satisfaction & profitability. By offering the complete solution for forecasting, demand planning, and inventory optimisation, our advanced inventory solution, Slim4, helps supply chain teams to make more informed inventory decisions.
However, we understand that supply chain teams need more than just the rights tools, they need the right knowledge and experience. With our Academy and structured training programs, we ensure that our customers understand what the numbers mean.
For this reason, our customers typically stock-outs by as much as 50%!
LET US SHOW YOU HOW SLIM4 COULD HELP YOU CAN STAMP OUT STOCK OUTS!
Incidence, who is actually responsible?
"Sales expected a lot from it, but it turned out to be nothing."
"Yes, but too much was ordered then."
"But that one customer would take it away?"
"Who actually came up with those ridiculous forecasts?"
"Maybe we just have to wait a while, but we will walk."
"Hey, it can't just go back to the supplier ..."
The subject that nobody wants: obsolete stocks. It's like a visit to the dentist. You realize that a dental visit is necessary to keep your teeth healthy, but you are not exactly looking forward to it.
Where is the problem? Three causes:
There are three reasons for the uncertainty surrounding the responsibility of obsolescence:
1. Many different departments and people are involved in stock choices
2. The causes are often diverse and complex
3. It is simply not a fun subject
Re 1. Many involved
An order picker is responsible for the number of order lines it picks up. Clear for everyone. But many different parties are involved in inventory creation, such as sales, marketing, purchasing, inventory management, item management, and logistics. The more involved, the easier it is to hide and avoid your responsibility. If you do not organize this, then any argument to make someone responsible is refuted by someone else:
- The seller said it would be a success
- Seller: "Yes, but then marketing must introduce it properly ..."
- The buyer provided 10,000 items as a forecast
- The Buyer: "That's right, but that does not mean that stock management must immediately deposit 2,500 ..."
- The supplier would do a major campaign
- The Supplier: "Yes, but you could not yet deliver the goods when we had already started ..."
- Marketing had prepared an extensive introduction
- Marketing: "Right, but article management had not put a good image in the system yet ..."
Re 2. Complexity
In addition to a large number of people involved, the causes of obsolescence are quite diverse. During the entire life cycle of a product, choices are made from different, often conflicting interests. And our multifocal * distribution structures do not make the process any easier.
* a new term within logistics that indicates the transition from traditional to modern distribution structures, such as bulk deliveries to warehouses on industrial sites (far) to parcel shipments to private individuals (close by).
Re 3. Not nice
People prefer to put their energy into fun subjects than to problems where little honor can be achieved. Better chances than challenges, better profit than loss, a better score than defend and prefer a new, fresh product than an old, obsolete article.
Definition of obsolescence
The solution starts with getting agreement on the definition. When do we call a product or assortment exactly obsolete? Often there is the talk of obsolete stock, while in reality there is just too much stock. In that case, a product can still best meet the inventory criteria, which means that a place in the warehouse is just legitimate.
The final definition is specific to each company. You decide for yourself what you think is acceptable or not, depending on your market, customers, policy, and resources. For example, if you are a wholesaler who claims to have the widest range, you will be less likely to say goodbye to a slow mover. But when you have limited capital and limited warehouse space, you are forced to make stricter choices. Therefore, do not apply general guidelines, but pay sufficient attention to your definition of obsolescence. Topics that can be dealt with include issues such as start date, number of customers, development of sales and maximum stock levels in weeks, money or volume.
On the basis of such criteria you can determine your specific definition, for example: with us a product is out of order when it has been in stock for at least 6 months, fewer than 3 customers have been there before, the sales in the last 3 months were lower than the 3 months before and the current stock is more than 15 weeks, € 10,000 or 1 pallet place.
Once you have defined a clear definition, you can run periodic reports and add nice pivot tables.
Who is responsible
As indicated, many people are harmed when creating an inventory and when creating obsolescence. But only one simple question is needed to find the right responsible person: who took the initiative to put the product in stock? As soon as you answer this question, you have appointed the responsibility. The person responsible for the birth of a product is also responsible for the funeral!
The number of people in charge is manageable. These are the most common:
- Buyer: at the initiative of himself or of the supplier
- Category Manager: at the initiative of himself or of the market
- Seller: at the initiative of the customer
- Management: based on policy and vision
How do you organize this?
As soon as every product (preferably in ERP) is connected to the initiator and therefore has an owner, the process can be started. You can prepare a report based on your definition of obsolescence. Of course, you add fine columns to the report, such as the supplier's name, brand, logistics data and order, and sales history. The more the better: everything is data. The owner then evaluates his own products and adds a promotion or comment. It helps to limit and standardize these. After that, it is crucial that the action is taken becomes stricter every time. In the first instance, you can still write down "communicate product in the newsletter", but in the end, you are forced to choose "write off and destroy". For example, you can name 10 possible steps that are becoming more concrete (and therefore more expensive). With each new reporting cycle, it is clear whether the previous action has had an effect and thus has received the product outside the obsolescence criteria. If not, you force yourself to go one step further. And don't forget, it is most cheap and efficient to simply sell a product that you have in stock! Returning to the supplier always costs money and margin. Moreover, many companies are not so good at this: is that pallet still there, it could already be returned half a year ago?
Complete the circle
If you want to do it all right, then you also ensure that the consequences of obsolescence end up with the right person: with the initiator. So if a seller wants to put a customer-specific product in stock, then future obsolescence also comes at the expense of his or her personal targets on turnover and margin. Sales would, therefore, be wise to have the customer sign for specific items and immediately see their personal interest. Also with a buyer, the costs for obsolescence can be deducted from earned earnings: fair deal.
Involve your suppliers
The above is largely based on the internal organization. But do not forget that a supplier also has every interest in a vital, well-functioning range. Of course, you can easily make your supplier co-responsible. It starts with saying this: "Dear supplier, you want us as a customer to grow, put new items in stock and make sufficient returns. A successful assortment is decisive in this and we will do that together. I expect a periodic report from you in which you compare our figures with the market and other customers and advise on what needs to change. And I would like to set a goal together for maximum obsolescence in the number of products and money. In addition to advice, you can help me with lower inventories, returns and sharing in costs. Moreover, I don't feel like stepping up new products if there is still too much old stuff. " To properly organize this process, it is useful to structurally assess your suppliers. Nowadays, simple, affordable software is available that will make this operational within a few days.
Finally, a bad metaphor
Compare it to the birth of a person. The parents have a child (consciously or unconsciously). You are therefore responsible for your child. Not only for birth, but also for education, development, and funeral. Fortunately, there is also a difference in this bad metaphor. Our children usually survive their parents, saving us from the funeral. Unfortunately, this is not the case with many products. Hmmm, maybe we should think about how we can extend the life of products ...
-source: Robert Driessen-
Improve company performance with demand forecasting
Australia’s evolving labour market and industrial shifts have pushed our imports to exceed US $200 billion per annum, adding a layer of complexity to the business landscape – where, how, and for how much to import. Manufacturers face the decision of whether to import or continue manufacturing, and this decision has become a trade-off between costs, efficiency, and value-adding activities. Our imports are made up mostly of vehicles, machinery, and electronic equipment, and come primarily from China, the US, Japan, South Korea, Thailand, and Germany.
What does this mean for inventory management? In most cases, longer lead times. The difficulty here is that it greatly extends the planning horizon, and one needs to deal with a longer period of uncertainty in demand. This increases the importance of a proper forecast.
This article describes four steps that will help you with improving your companies’ inventory based on demand forecasting.
1. Make a forecast
Surprisingly, there are still companies that do not really forecast but just use intuition to make sure there’s enough stock, regardless of cost. In such cases, there is no dedicated staff or system to inventory management, and it becomes an extra task given to someone with a different role. Of course, this is far from the best way of planning, as excess stock can cause working capital and obsolescence risk to balloon. We believe inventory management is a profession and deserves the right focus – it’s the backbone of every company. Whilst you need to make sure that there is at least a sufficient amount of stock, the industry winners are those who find the right balance between availability and costs.
2. Look ahead, not behind
A forecast can be based upon historic sales, but it’s important that trends, seasonality, and market influences are all taken into account. This works proactively to prevent both excess stocks as well as out-of-stocks. Especially with long lead times, it is impossible to respond quickly to a changing market. In the case that forecasts are too low, this could lead to an out-of-stock scenario, with high-cost air freight being the only quick fix. In the case that the forecast turned out to be too optimistic, this could lead to obsolete stock. Take for example a company that has a forecast solely based on a calculated average of historical sales, and the period being used represents a high-sales season, and it is approaching the low-season period. If this company purchases based on this high forecast and do not take seasonality influences into account, the inventory will exceed the desired level. If seasonality is reflected in the forecast, your inventory will stay within the accepted boundaries for low-season sales.
3. Take external information into account
External information refers to information that influences sales but cannot be observed through historic sales data, such as a promotion, event, product life cycle change or even change in government regulation. Where available and possible, this information should be used to refine forecasts. Adjusting the forecast based on this additional information will increase the accuracy and ensure that these events do not come as surprises. Taking a comprehensive view of the interaction between the business and the inventory, we can achieve optimal levels of stock.
4. Determine the level of service you want to provide
This step does not influence the forecast, but it does influence the calculation of the optimal inventory level you should hold, which is a combination of many things, including the forecast and safety stock. A forecast should reflect the best possible way how to deal with expected demand but is never 100% correct. Therefore, it is important that the calculation takes into account all the relevant data in order to calculate the best possible safety stock. Think about deviation in historic demand, lead time, review time and also the desired service level. Ultimately, this service level determines to what extent fluctuation in demand will be covered.
A proper forecast is a must for companies that want to proactively keep stock levels under control. Enriching the forecast with external information always pays off and leads to a more proactive approach rather than being reactive which could cause problems, especially in situations with long lead times. You’d better spend a little bit more time on the forecast and plan your activities well, rather than firefighting and ending up with too little or too much stock.
Planning using Excel is a thing of the past. We have been in the era of inventory management systems for some time now – these systems are highly developed and can support your business with all features you need, allowing you to focus on priorities to manage your inventory.
WHY SPREADSHEETS DON'T WORK ANYMORE
When it comes to stock control software, spreadsheets are the weapon of choice for most planners. However, spreadsheets are only as effective as the person entering the data. Even for the most advanced spreadsheet users, trying to manage inventory in this way can quickly become complex, clunky and a long-winded exercise. But is there a better alternative? How can you reduce your reliance on cumbersome spreadsheets?
Spreadsheets: friend or foe?
For almost all business professionals, the relationship with spreadsheets started when they were at school. Over time, they become familiar with the intricacies of the tool. As a result, spreadsheets are often the default program for every bit of analysis required.
However, many businesses are far too reliant on these simplistic data processing tools. While spreadsheets are easy to use, in many business situations, they simply lack the processing power, standard structure or robustness required. This is especially true in supply chain management where almost all decisions must be underpinned by effective analysis of potentially thousands of lines of data.
To build a spreadsheet that can manage such large volumes of data, someone would have to spend hours upon hours building and refining a spreadsheet to deliver the required results. Even then, the end spreadsheet would no doubt be slow and cumbersome: not to mention prone to crashing!
Can spreadsheets create a single point of failure?
In many businesses, the spreadsheets used to manage the inventory are built by just one individual. However, what happens when they change roles or leave the business? Will their replacement be able to decipher the cryptic formulas which have been developed over years and years of patching?
The reality of spreadsheets is that every sheet becomes bespoke. The consequence of this is that businesses become dependent on whoever created the document. Given that this individual could move on or even get hit by a bus tomorrow, risk leaving themselves dangerously exposed to a single point of failure.
Regardless of changes in personnel, for a stock control software to be effective, it must support business continuity. Consequently, forecasting, demand planning, allocation and replenishment procedures must not only be robust but also standardised.
How efficient are spreadsheets as stock control software?
To keep up with the dynamic nature of today’s complex marketplace, supply chain teams must be able to respond to change quickly. However, if your entire inventory management process is underpinned by spreadsheets, keeping up with changes in customer demands or shifting supply conditions is an impossible undertaking. After all, how can the business remain responsive if the spreadsheets in question must be completely re-invented every time a change occurs?
Change is unavoidable and, thus, to work efficiently, supply chain teams need dynamic stock control software to stay one step ahead. The problem with spreadsheets is that every change requires manual intervention. Even in relatively stable environments, given the sheer number of SKUs, keeping up with the demand of the business can be hugely time-consuming.
Whereas with spreadsheets, where planners are left firefighting, an effective stock control software solution should allow planning teams to work proactively.
Through enabling businesses to automate inventory management processes across most of their assortment, supply chain teams can focus their attention on the more critical issues. By allowing the stock control software to do the “heavy lifting”, supply chain teams can focus their time and attention where it is required.
How reliable are spreadsheets as stock control software?
Whether planning to place a large order with a new supplier or phasing out a struggling product, inventory management decisions can have a far-reaching impact on the wider business. Consequently, it’s important that the insights used to underpin these decisions are reliable. But to what extent can you trust a spreadsheet-based analysis?
Ultimately, a spreadsheet is only as accurate as of the person who created it. Given that even a minor issue such as incorrect data input or formula could have a profound impact on the output of any analysis, spreadsheets are not the most robust solutions. Furthermore, when you consider that spreadsheets require constant refinement and human intervention, it’s very easy to lose sight of which is the most up to date version.
Your stock control software should provide you with insights you can trust. Through utilising proven forecasting models and robust data structures, an effective stock control solution will minimise the risk of errors, ensuring that the analysis is consistent. The result: solid insights on which you can base supply chain decisions with confidence.
Can spreadsheets keep up with your business’s growth?
When a business is first starting, spreadsheets are probably sufficient. However, as demand grows and the organisation expands to encompass more locations, the complexity of the operation will spiral. But how scalable are spreadsheets? Do they offer the capability to support growth?
For most businesses, growth results in greater demand. Thus, planning teams must manage bigger networks with more customers and more products. However, all these combined results in an exponential increase in data. If you try and manage this with spreadsheets alone, the number of lines of data and the formula required to keep everything in check would be simply mind-boggling!
Effective stock control software should not only support growth but actively harness the complexity to provide businesses with meaningful insights. Your stock control software should not only support growth but effectively harness the complexity to provide your business with meaningful insight.
What should you use instead?
With our inventory optimisation solution, Slim4, you can say goodbye to your cumbersome spreadsheets and start reaping the rewards of true stock control software.
Slim4 is our purpose-built inventory management solution for forecasting, demand planning, and inventory control. Underpinned by the basis of management by exception, Slim4 enables businesses to efficiently strike a balance between working capital, operational costs and the optimal service level.
Slim4 allows businesses to re-align their operations with the expectations of their customers while removing the complexity from inventory management. Customers who replace spreadsheets with our solution typically see the following benefits:
- Up to a 50% increase in efficiency
- Automated forecasts for up to 95% of the assortment
- Greater insight and more control