Over the years, demand planning and inventory optimisation have always been a hot topic for discussion. For many of these businesses, excess stock is both a major speed bump and something which causes headaches for management, finance and supply chain teams alike.
While there are a few specific segments of the automotive aftermarket where excess inventory is an unavoidable part of their business model, there are very few examples of businesses where no reduction in excess inventory could be achieved at all.
The influence of excess stock on business' performance
In the vast majority of organisations, regardless of the reasons that caused the excess stock, it is typically involuntary and unwanted. But what are the tell-tale signs that excess stock is putting the brakes on your business’ performance?
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If you look at businesses like Amazon, Alibaba or even your local super market, it seems that the-sky-is-the-limit when it comes to assortments. While offering literally millions of different products undoubtedly gives customers plenty of choice, keeping up with these exploding ranges can prove a constant battle.
In pursuit of a unique selling point, many businesses have developed extensive assortments encompassing many thousands of SKUs. While this approach enables businesses to provide customers with a huge amount of choice, managing such a large number of items brings with it its own range of challenges.
How can you boost the value of your assortment?
When you consider that 80% of a business’s turnover is typically generated by just 20% of the assortment. By holding such large assortments, many businesses invest a huge amount of resources into managing thousands of items that offer limited value to the business in terms of profit but great value to the end customer. With this in mind, what can businesses do to maximise the value of their assortment without compromising their ability to meet the needs of their customers?
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In Asia-Pacific, many auto-parts distributors are small or medium family-run businesses, often with legacy technology systems to track their inventory. A lot of manual processes are involved in their inventory management workflow, which results in specific but common inefficiencies across the board.
The gambling game
Because of so much opacity in the delicate balance between supply and demand, inventory management in the automotive aftermarket industry can resemble a sophisticated gambling game, with the odds stacked against the distributor in a play of dozens of variables. Distributors gamble on how much they’re going to sell and they plan purchasing based on that gamble.
Get more insight on how technology can reduce uncertainties around inventory management by downloading the whitepaper.
The EOQ formula from theory to practice in 7 steps
This paper discusses an indispensable inventory management figure: the economic order quantity (EOQ). Your ordering quantities highly affect inventory height. Since they also influence the number of replenishments, they are an important influencer of your day-to-day supply chain operations as well. Therefore, the determination of the order quantity of your product range should be a deliberate process. You might not be surprised that in practice the order quantity is not determined by your business strategy as it should be, but dictated to you by your suppliers or even worse (and more often the case); nobody knows why that number is there.
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It is the time for supplier management to really look back and reflect on relationships (or lack of…)! There is never a better time to review your supply chain relations than now!
However, clutching on to a bad relationship can cause great heartache. Likewise ineffective supply chain partnerships can prove extremely costly for your business. So how can you end the supply chain partnerships holding you back in order to establish more profitable bonds with the suppliers that count?
The true cost of poor supplier management
Although it is often difficult to put an exact figure to it, research from the Chartered Institute of Purchasing and Supply highlights that the potential costs benifits to adopting more effective supplier management tactics could be "enormous!" Ultimately, your ability to satisfy the expectations of your customers is heavily influenced by the performance of your suppliers. With this in mind, the importance of effective supplier management is clear. However, when you are focused on making a relationship work, it is easy to lose sight of how a bad relationship is really affecting your operation. Put simply, how much are you having to invest in inventory in order to compensate for your supplier’s poor performance?
Take for instance the following scenarios:
- The minimum order quantity is seemingly non-negotiable
- Your supplier’s lead times are excessive and your order always seems a low priority
- What your supplier actually delivers deviates from the supplier delivery agreement
In all of these scenarios, you have no choice but to order either additional cover stock or safety stock. After all, unless you protect your supply chain with additional inventory, your ability to service the needs of your customers could be seriously hampered. However, can you justify investing invaluable working capital into inventory?
Optimise your approach to supplier management
To help you adopt more collaborative supplier management strategies, our inventory management experts have outlined a simple guide. To help you take control of your supply chain relationships, this simple 4-step guide explores 4 key areas to help you cut unnecessary investment in stock. The result: more profitable relationships with your supply chain partners.
Ultimately, through taking these proactive steps to improve the performance of your suppliers, you can begin to establish more effective supply chain partnerships.
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Make assortment management a priority!
In this knowledge article we explore how you can strategically refine your approach to assortment management. Through adopting the following 4 simple steps, you will be better positioned to offer your customers the products they want while systematically removing the items put your finances under pressure:
- Analyse your assortment and identify what products matter most to your customers
- Prioritise items within your assortment in order to determine a more strategic stocking strategy
- Establish robust business rules to ensure your assortment remains in line with the corporate objectives of your organisation
- Re-focus your investment, time and energy on the products that add the most value
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In order to offer your customers a more focused and valuable range, we have put together a simple guide to better assortment management. Complete the form below to and discover how you could improve customer satisfaction while minimising supply chain costs!
While the sales team may expect consistently high levels of availability in order to satisfy customer demand, the finance team are typically more interested in inventory cost. Consequently, operational teams are under constant pressure to strike the balance between service levels and investment in stock. However, in order to ensure that supply chain decisions are in line with the expectations of the wider business, it is vital that information and insights from across the business are readily available. Yet, despite this, many organisations fail to harness the full potential of internal supply chain collaboration.
Why does supply chain collaboration matter?
So what can you do to demolish the internal silos that exist within your organisation? More importantly, how can you lay the foundations to establish more collaborative internal relationships? While inventory management decisions are typically based on rational supply chain data such as historic demand and confirmed orders, for many businesses, there is a strong argument to encompass further insights from finance, sales and marketing teams.
After all, through attaining a greater understanding of customer demand as well as the financial constraints in place, supply chain teams will be able to make better decisions. As a result, the business will become better positioned to guarantee customer satisfaction while still keeping a tight grip on investment in stock and supply chain costs.
Enhance supply chain collaboration within your organisation
We explore how you can enhance internal collaboration within your organisation. This simple 6 step guide will demonstrate how you can gain access to valuable insights from across the business, as well as how you can rationalise and validate this information. Ultimately, this guide will help you construct a more collaborative environment in which to make more informed supply chain decisions! Complete the form now to download our knowledge article!
Holding too much inventory has some potentially disastrous financial consequences. After all, money tied up in inventory cannot be used anywhere else. Furthermore, capital tied up in items that you can no longer sell (e.g. obsolete stock) may be lost forever. However, when you consider that there are further inventory costs associated with holding inventory as well as financing the investment in inventory in the first place, determining the true cost of your inventory can be a real challenge.
Inventory costs can be defined as the costs your business incurs as a result of holding inventory. These costs can include anything from purchasing the inventory in the first place to processing, distributing and holding the stock. Furthermore, although often overlooked, inventory costs also concern any costs that come as a consequence of shrinkage. While an unavoidable reality if you want to keep your customers happy, there are a number of steps you can take to identify, allocate and minimise inventory costs.
How can you minimise your inventory costs
Understanding the composition of costs is about more than simply being able to calculate margins. Supply chain teams need complete visibility over all of the costs associated with holding stock in order to make informed inventory decisions. Equally, it is vital that businesses understand these costs in order to identify opportunities to improve as well as to calculate what benefit can be gained through optimising the inventory.
From the cost of capital to the cost of obsolescence, in our latest whitepaper we explore what factors you need to consider in order to calculate the true costs of your inventory. This whitepaper will not only help you determine your current inventory position from a financial perspective but also what return you can expect from reducing inventory levels!
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Customers expect suppliers to be able to provide anything and everything at a moment’s notice. In response to this demand, many businesses have exploded their assortment strategy to encompass many thousands of different SKUs. The problem is, however, how much do you really know about the items within the assortment?
Do you know which items offer the greatest return or which are most important to your customers? Equally, do you know which items are costing you money?
While offering literally millions of different products undoubtedly provides customers with plenty of choice, keeping up with these exploding ranges can prove a constant battle. After all, it’s no secret that, typically, 80% of a business's turnover is generated by just 20% of the assortment. Consequently, by holding such large assortments, many businesses may be unnecessarily investing a huge amount of resources into items that offer limited value to the business or the customer: all to the determinant of items that really matter! In order to ensure that assortment decisions are made inline with both the expectations of the customer as well as the demands of the wider business, businesses must ensure that the assortment strategy is a clear reflection of the businesses goals as well as the expectations of the customer.
With this in mind, what can businesses do to maximise the value of their assortment strategy without compromising their ability to meet the needs of their customers? How could redefining your approach to assortment management help improve the performance of your organisation?
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