To thrive in the Omni-channel environment, retailers require a different mentality. After all, success ultimately depends upon having the right retail processes, inventory policies and assortment strategy in place. However, for both traditional retailers and online “pure players”, developing an effective Omnichannel strategy that keeps both long-tail items under control and protects profit margins can be a real challenge.
Retailers that were established and remain focused on the online environment, the so-called "pure players", now compete with traditional retailers for the same profitable bounty presented by the end consumers. Despite this, the business models and the revenue structures for each type of retail differ hugely. The assortment of a pure player is often wide, and inventory optimization goes beyond simply determining the optimal inventory level. Consequently, for these retailers, determining which items they should and should not stock is an important question. To make such decisions, effective product life cycle management is essential here.
On the other hand, for retailers with physical stores, the challenge is less about assortment management and managing the distribution process between warehouses and retail locations. After all, demand patterns for a store in a major city center will differ from another store within the same chain located in the countryside.
Given that pure players generally invest in a much broader range of items in much smaller quantities than traditional retailers, margins tend to be lower. Furthermore, with a high level of price transparency, online retailers are under constant pressure to keep prices competitive. With the additional requirement for effective SEO and paid click campaigns, marketing costs can also be higher.
Fulfilment costs for online retailers are driven up by the fact that the end consumers order goods in individual units; personnel and location costs are but a fraction of the costs faced by a traditional retailer. After all, an online store has no real need for presentation stock!
Although out of stocks have a big impact on traditional retailers' processes, it can be very difficult to measure. For example, regardless of whether a store assistant influences a customer's purchase decision or not, the chance of product substitution is high in a physical store environment. For online stores, however, the internet has brought about much greater transparency. Within a matter of seconds, a customer can now easily find five different web shops, each offering the same product with the right price, delivery time and, of course, availability. Consequently, no stock equals 'no sale.'
MANAGING THE LONG TAIL
Many web shops depend on their broad and deep assortments to provide a unique selling point. Within these large assortments, many different product variants are offered. This can often mean that the famous 80:20 rule can sometimes move more towards a 90:10 rule. However, while the percentage of articles within the assortment that bring in the bulk of the turnover is admittedly smaller, as the entire assortment grows, in absolute
terms, the total number of articles that contribute to the bulk of the turnover will only continue to increase. The assortment tail can also create value: given that price-based competition is much lower for these items, long-tail products can offer much higher margins.
Many physical retailers also make their assortment available via an online channel. As part of their webshops, many blended retailers also try to offer an extensive long tail. However, unlike pure players, traditional retailers often attempt to integrate their online operations with their physical store processes. This provides the ability to encompass local non-moving items which would not typically sell into the assortment. However, this raises an
interesting question: Which articles should be made available in physical stores and which should only be offered via the online channel online?
Whereas pure players are experienced when it comes to managing an extensive assortment with a high degree of rationality and extensive or advanced automation, the traditional category manager is not as familiar with this. As a result, in many cases, the long tail does not get the attention it requires, which can directly impact margin.
OMNICHANNEL RETAILING FOR HIGHER EFFICIENCY
Given that for many retailers, the record sales of 2008 will probably not return, retailers must maximize the yield of their assortment. A higher stock turn can directly contribute to the profitability of the assortment. However, turning stock round quickly can also bolster the innovative power of a retailer. There are several ways a retailer can improve the efficiency of their operations. For instance, closing poor-performing stores and centralizing the assortment tail are just two examples that can have a hugely positive impact on the stock turn and overall profitability. Furthermore, by managing the long tail more effectively, retailers can better position themselves to protect margins at the end of the product lifecycle.
TURNOVER PER M2 VS SALES BY PRODUCT PER CHANNEL
The traditional category manager is always trying to achieve the right assortment for the space available: ensuring that the assortment is in line with both the store format and the presentation principles. The merchandiser is then responsible for translating the proposed assortment in an optimal planogram or shelf plan. The operational impact of
a shelf change is so large that, on average, this can often only be done one or two times a year. Consequently, this can often result in suboptimal results from day one.
The product manager of a webshop is typically more focused on an individual item's performance rather than the entire assortment. The product manager's responsibility is to check on a daily or even hourly basis if an item is still profitable. Given that margins are much smaller, product life cycle management is even more critical here.
Furthermore, to compete with webshops, category managers within traditional retailers also need to maximize the revenue yield at both a product and a channel level. Differentiating the strategic approach for each shop and channel is an important prerequisite for a solid Omnichannel strategy. With the support of detailed data, category managers can make fact-based decisions far more quickly. However, this requires additional system support and a greater requirement for the work of analysts.
FROM 'GUT FEELING' TO 'FACT BASED' DECISION
The decision processes behind inventory and assortment management are becoming increasingly more fact-based. All departments within a retail organization are under more and more pressure to become leaner and more efficient. However, Omnichannel retailing demands bigger assortments. This, in turn, means that fewer people have to make
quicker and more frequent decisions. As a result, automated 'business rules' and 'situational awareness' are becoming more important.
The second competency retailers have to develop is extract valuable information from 'big data.' All channels provide an incredible amount of data, of which the potential is far from being fully exploited. Many retailers can already see exactly how much revenue they have achieved in a particular store in the last 5 minutes, for
instance. However, few retailers can combine this information with data from other sources such as Google or Facebook by utilizing smart algorithms and scenario planning to forecast what the future will bring.
INTEGRATED STOCK CONTROL
Many retailers have separate stock responsibilities for each channel. In order to maximize overall supply chain performance, inventory stocked across all the various stocking locations must be taken into account. A strong Omnichannel approach to inventory management requires precise planning, effective management and complete transparency over the entire logistics network. Where is the stock? What is the current demand, and what will the demand be in the next few days or even hours? And, more importantly, where demand exceeds supply, should the distribution quantities be actively adjusted? If so, which customers should be given priority?
Maintaining a high level of availability for the online channel is more important than in the stores. However, the online stock should also be managed differently than stock in stores. An additional challenge associated with the online channel is the large number of returns which means that the end consumers hold a sizeable inventory proportion.
Within many retail chains, most of the mistakes that arise at the head office and distribution centre are solved on the shop floor. However, often an average performance is more than sufficient here. In e-commerce, this is not enough to achieve a return. To keep both the return rate and customer complaints to a minimum, online retailers must do everything in their power to fulfil every customer's order perfectly. The goal for every order should follow the OTIFNENC principle: On time, in full, no error, no contact. The result of achieving this is an immediate boost to profitability. However, the category manager must first take more responsibility for the operational execution and ensure that they are acting based on standard processes.
The food industry is at war. Faced with a constant battle to offer high availability levels while minimizing waste, shelf life optimization has never been harder or more vital!
Given that inventory, handling & transportation costs must be kept under close control, ensuring product freshness is a huge challenge for all businesses across the food supply chain.
SHELF LIFE OPTIMISATION IN INDUSTRY
This article explores how some of the food industry's biggest names have achieved shelf life optimization to realize their supply chain goals.
With the support of advanced statistical techniques and intelligent algorithms, retailers have dramatically reduced the amount of time they spend worrying about replenishing stores. By taking advantage of tools that consider a broad range of data, including historical demand, POS data and current stock levels, retailers can calculate stock requirements for each store with far greater accuracy. The result is structural shelf life optimization across their entire range.
Take, for instance, the Dutch retailer, Udea: the retail chain is currently in the process of introducing what the Commercial Director, Jan van den Brink, calls "'autonomous ordering." Every day, transaction data and stock levels from across all 70 of the chain's EkoPlaza stores and the distribution centre are analyzed with the support of advanced software to calculate orders for the following day automatically. Since starting the project, over half of the stores now receive goods in this way.
As part of this process improvement, the local entrepreneurs who own the franchise stores lose some autonomy. However, as Van den Brink explains: "Despite this, there was no resistance. The process we are now trialling ensures that control of the shelf space on the shop floor remains the same: the local managers can still determine which items they want to include in their range. Furthermore, the store manager can now also see what the minimum stock requirements are to ensure the shelves look full and attractive." As a result, the store managers, including those who are self-employed, can also enjoy the benefits of autonomous ordering.
Although many managers may have been more accustomed to using a scanner to determine order requirements themselves, this process was often subjected to errors. Van den Brink goes on to add: "Human mistakes are unavoidable. However, with the introduction of this new process, we have seen inventory levels reduce while availability continued to improve. In most stores, the introduction of autonomous ordering has helped increase availability from 94 or 95 percent to 99 percent."
REDUCING OUT OF STOCKS
All 500 of Spar's stores are operated by independent entrepreneurs. Although the business has several pressing issues that have to be prioritized, the supermarket chain is considering ways to provide its network of entrepreneurs with more accurate order advice. Edwin Brekelmans, supply chain manager at Spar, explains: "We believe in the power of entrepreneurs. After all, they know the local market. However, to generate more revenue, what these business owners require now is more support with their online activities."
In the coming year, Spar is set to invest in a new POS system which will contain a module providing further capabilities to help record out of stocks and waste. "We are confident that if we help the business owners to reduce the number of out of stocks, they will, in turn, generate more revenue."
While the new POS system will have the capability to inform and advise the store managers, any required action will have to be completed manually. "Although we are not quite there yet in terms of being able to replenish inventory levels of an item automatically, this is a future wish for the business," states Brekelmans. Once implemented, this will help the business to ensure shelf life optimization across all locations.
TAMING THE BULLWHIP EFFECT
Sligro is also looking for ways to improve its inventory management processes across its supply chain. The business's foodservice division consists of 47 cash & carry wholesalers and eight wholesale outlets delivered to the customer. Also, Sligro's food division consists of 127 EMTÉ supermarkets stocked via two distribution centres located in Kapelle and Putten.
"The managers at these stock locations currently manage their own inventories. However, this is far from optimal. Given that the customer-supplier relationship is between the stores and the distribution centre, it is tough to gain actual customer demand visibility. We want customer demand to be directly translated across the entire supply chain," explains Nico Kuipers, inventory manager at Sligro, while referring to the bullwhip effect.
Due to the uncertainty between the demand from the independent stores and distribution centres, the stock managers unknowingly build in additional safety stock. "Although, on the whole, availability is good, in order to achieve this, we have to hold a lot of stock," says Kuipers.
THE RIGHT STOCKING DECISION
Given that the number of articles and the level of volatility across the retail food division is significantly lower than the food service branches, the pressure is far less intense. Despite this, Sligro is still looking for ways to improve further the way they manage their inventory and ensure shelf life optimization across their range. Kuipers explains: "One of the questions we have to ask is whether we should hold slow-moving items in both or just one of our distributions centres in Kapelle and Putten. The latter will lead to lower inventory costs, and because of the higher stock turn, product quality will be higher. However, given that trucks would have to travel back and forth between the distribution centres on a daily basis, this will inevitably lead to higher handling and transportation costs."
Spar has already applied this concept to both of their distribution centres in Waalwijk and Alkmaar. Although the vast majority of their assortment is stocked at both locations, around 600 to 650 slow-moving fresh items are stocked exclusively at Waalwijk. Every day, two trucks transport the required fresh articles from Waalwijk to Alkmaar, where they are transferred onto trucks destined for supermarkets located in the north of the Netherlands. "As a consequence of the short product shelf life, the risk of shrinkage is particularly high for these items. By stocking these items in just one location, we require much less stock. This, in turn, results in reduced waste as well as fresher products in stores," says Brekelmans.
Software tools with smart algorithms are of great value to inventory managers. Udea, Sligro and Spar utilize Slimstock's retail inventory optimization solution, Slim4, to manage their fresh items. Slim4 has been enhanced with new functionalities to help manage product groups.
"Slim4 is well suited for forecasting demand for each item and translating this into purchase order advice. Before this, our requirements could only be calculated on a monthly or weekly basis. Although this information could be used to calculate a general figure for average demand per day, this did nothing to support the planning of items with a short shelf life. Given that a store may sell ten units of an item on Monday but then sell 35 units on Saturday, for fresh products, you need to determine exactly how much you anticipate to sell each day. With Slim4, this is possible." States Van den Brink.
"Thanks to this additional functionality, we now have a much tighter grip on our inventory, and as a result, we are able to offer much fresher products while keeping waste to a minimum," adds Brekelmans.
For Udea, the next challenge is to start utilizing Slim4 to help plan the ultra-fresh produce items. "The sales pattern of these items is far more volatile than other fresh items. The demand is highly seasonal and fluctuates every week due to customer's sensitivity to price. As a consequence, managing these articles is a particular challenge for us," explains Van den Brink.
INFORMED DECISION MAKING
Kuipers also stresses the importance of distinguishing between each of the various items when embarking upon shelf life optimization goals. For instance, given that there is no alternative to a cucumber, this means a high level of availability is required. In contrast, if a certain variety of salad mix is sold out, consumers can just as easily choose a similar variant. "Similarly, while brown bread is a good alternative to whole wheat bread, it is no substitute for gluten-free bread. We cannot guarantee the availability of 99.9 percent for every product as customers will simply not pay for it. As a result, we have to make an informed decision." explains Kuipers, who argues that many of these decisions have to be made through taking a formulaic approach. "As part of the formula, you sometimes have to accept additional supply chain costs. Our role as supply chain managers is to make these costs viable."
GOING BEYOND INVENTORY REDUCTION
The stories of Spar, Sligro and Udea highlights that inventory reduction is not an end in itself. Retailers must always strive to offer the freshest products and highest level of service. Given that this must be achieved at a minimal cost to the consumer, the cost is therefore always an important consideration. "Sometimes, you have to accept higher inventory costs in order to achieve a more efficient supply chain. However, this should always be on the condition that the quality of the product is not compromised," says Kuipers.
Likewise, in addition to keeping inventory and waste costs under close control, Spar also keeps an eye on transport and handling costs. This is one of the reasons why Brekelmans intends to use the economic order quantity functionality within Slim4. This module calculates the economic order quantity based on the items' given costs and the available space in the distribution centre. "Whereas now, we might receive one pallet layer of a specific item; it could be more efficient to order three pallet layers instead every three weeks. However, this does not work if you have to discard the third layer after the second week as the products have perished," explains Brekelmans. By ensuring shelf life optimization, the business can minimize the level of waste through poor decision-making.
Brekelmans also advocates greater collaboration with suppliers and logistics service providers, and other food retailers. "If we fill the trucks to capacity, this keeps our handling costs down, and the logistics provider also benefits as this allows them to operate their fleet far more efficiently. We already have agreements in place with several logistics providers to ensure deliveries are made in a few trucks as possible. As a result, the number of journeys that the logistics service providers have to make can be reduced." Brekelmans goes onto conclude: "We sometimes forget that the cost of an article is not only determined by the purchase price, but also by the logistical costs."
TO KNOW ABOUT SLIMSTOCK AND SLIM4 FILL THE FORM BELOW
SuSupermarket chain Jan Linders has taken the help of Slimstock for their stock's integral control in both the DC and in the 62 stores. "With Slim4, our supply chain stock has become much more manageable," says supply chain manager Jeroen Kuijvenhoven. "From now on, we can continue to optimize."
Jan Linders is an independent supermarket chain with 62 supermarkets in the south of the Netherlands. These are supplied from the central distribution center in Nieuw-Bergen in Limburg. Previously, a software solution was used for store stocking, which always required many manual adjustments. Also, various product groups, such as unprocessed fruit and vegetables, previously did not receive automated order advice and were ordered via an order book.
The company has been using Slim4 for some time now to control the stock in the DC. At the beginning of this year, the retailer decided to manage the entire chain stock, i.e. those in the DC and the stores, with a single software system, opting for Slim4.
CONFIDENCE IN ORDERING ADVICE
After proper preparation, the software was rolled out across all stores in just six weeks - including a pilot. Now that Slim4 generates the optimal order advice for the stores, confidence in this has increased steadily, says Kuijvenhoven. "The number of adjustments to this ordering advice is getting smaller and smaller. We can also provide a much more targeted answer to questions from the stores and work on improvements." The order advice from Slim4 is passed on to the supplier Collective app, with which the store management can easily handle their stock-related shopping processes. They can check the order advice in this app, adjust and approve it if necessary.
EXCESS STOCK FALLEN SUBSTANTIALLY
"Planning the entire supply chain with Slim4 has greatly improved the manageability of the supply chain", Kuijvenhoven observes. "This chain stock had decreased significantly within a few weeks. Slim4 is a user-friendly system that offers a lot of support to both our supply chain planners and store employees. The Slimstock people kept us sharp during the implementation and ensured that our work processes did not become unnecessarily complicated."
ABOUT JAN LINDERS SUPERMARKETS
Jan Linders is an independent supermarket chain with 62 supermarkets in the southeast of the Netherlands. A consumer turnover of 457 million euros was achieved in 2019. Jan Linders is oriented towards the south and stands for the best fresh produce, customer friendliness, solid offers and regional anchoring. Jan Linders has been one of the best supermarkets for new products for many years and was recently named by GFK for the 15th time as the supermarket with the best bread department. The supermarket has also been called the supermarket with the best beer and specialty beer department for seven years in a row.
Since its founding in 1993, Slimstock has grown into the European market leader in stock optimization. Slim4, the software package for forecasting, demand planning and stock optimization, helps more than 1000 customers worldwide to get the right stock in the right place at the right time. In addition to software solutions, Slimstock offers project-based support and professional services such as coaching, analysis and interim professionals and knowledge and experience at international events and by offering supply chain courses, master classes, and training through the Slimstock Academy.
Stocking a product involves assuming the risk of investing in certain items without being sure that they will eventually end up in demand.
How do you know if you should have an item against a stock or to order?
Pros for deciding to have an item in stock:
- Agility to meet unforeseen demand
- Security when offering customer service
The disadvantage for deciding to have an item in stock:
- Stock is not free and also carries opportunity costs
- Obsolescence risk. Demand is volatile and changing
In the following infographic, we give you 12 reasons to stock an item.
As Covid-19 rumbles on, supply chain professionals now have another challenge on their horizon: Chinese New Year.
In 2021 Chinese New Year Festival will be celebrated February 11-17. Far East Suppliers will halt their production for this annual national holiday, SO THE TIME TO START PLANNING IS NOW!
Suppliers are still playing catchup from the pandemic. Because of this, backorders and customer demand remain volatile which means extra steps must be taken this year to prepare for what lies ahead.
A SIMPLE GUIDE TO FORECASTING FOR CHINESE NEW YEAR
To help you prepare for supplier closures, we have put together a simple infographic.
By following these milestones, you can ensure you have taken all the necessary steps to:
• Build robust demand forecasts
• Align sales, operations & the wider business
• Secure availability without over-investing in inventory
Slimstock has been helping companies like yours lower inventory costs while increasing customer satisfaction for 25 years. Our inventory management software is used by 1,000+ customers worldwide to free up capital and simplify the ordering process. Chat with one of our friendly customer service reps today to learn how we can help optimize your inventory.
Are you confident in your company’s ability to optimize inventory in shops, warehouses and DCs? Do you trust your supply planning data? Is your forecasting automated? Can your inventory management and supply planning team orchestrate a quick and effective response to widespread supply chain disruption?
If you can answer yes to most or all of these questions, then you work for a company with high inventory management and demand planning maturity. The benefits of achieving this start with saving money, lowering inventory and reducing stockouts. High-maturity inventory management and demand planning also enable you to stay nimble and better navigate crises, like the black swan event and resulting global disruption that 2020 will be remembered for.
Slimstock’s Inventory Optimization Maturity Model helps you understand where your business is at now, and what you’ll need to gain the benefits of high-maturity inventory management and demand planning.
The Benefits of Improved Planning
As a leading forecasting and supply planning solution provider, the goal of Slimstock’s maturity model is to help companies better understand their own supply chains. The model’s structure is based on Gartner’s Supply Chain Planning Maturity Model. However, where their model focuses on general supply chain planning, Slimstock’s model is specifically focused on demand & supply planning.
We’ll see what criteria go into each of these later, but first, let’s look at the model itself.
STAGE 1 – Chaotic Planning
Planning is performed by Processors – There is no dedicated demand planning team. Inventory and sales data are entered into a spreadsheet and the resulting outputs become the order. Inventory management and demand planning are unconnected and transactional in nature.
STAGE 2 – Reactionary Planning
Planning is performed by Interpreters – A dedicated demand and supply planning team exists, but they are mostly self-taught. Information is taken from an ERP and fed into spreadsheets to generate an order. Inventory management and demand planning are integrated.
STAGE 3 – Proactive Planning
Planning is performed by Analysts – A dedicated team of trained forecasting and inventory planners use best practices to identify and prioritize fast moving and/or high-margin items. Basic forecasting tools such as predictive planning and exception management are used to increase forecast accuracy and streamline processes. Single node optimization can be achieved.
STAGE 4 – Collaborative Planning
Planning is performed by Catalysts – The forecasting and inventory management team understands how decisions in forecasting adjacent departments affect their own and work with them to achieve better outcomes. More advanced forecasting tools are used and tasks such as generating business rules and orders are automated. Multi-Echelon Inventory Optimization and supply chain optimization are possible.
STAGE 5 – Optimized and Integrated Planning
Planning is performed by Orchestrators – Companywide, each departments’ impact on forecasting and supply planning is understood and quantified. The demand and supply planning team drives vertical alignment of strategic, tactical and operational plans. Departments collaborate on new product introductions and lifecycle management. The company realizes inventory optimization via a well-orchestrated and aligned supply chain.
With concerted effort, companies can rapidly achieve the first 3 stages of the maturity model, especially with the right tools and process automation. Going beyond stage 3 requires building a more responsive supply chain. Doing this takes focus, investment, and commitment from all branches of company leadership, not just the supply chain team.
The Pillars of Demand & Supply Planning
Four primary pillars make up demand and supply planning.
- Tools & Automation
By improving these areas together, you can attain the best results with the least organizational impact.
Data is the fuel of demand & supply planning. Without this fuel, planners get stuck doing manual labor such as data collection, order entry and manual calculations. Data enables an organization to gradually automate tedious tasks, and allows planners to start prioritising responsiveness, decision making and tasks that add value.
The data you collect must be complete and correct and accurate. The two kinds of data to focus on are:
• Transactional data - You must know your exact inventory levels, exactly how much you’ve sold and when you sold it, and exactly what is coming in.
• Planning parameters - These are your lead-times and vendor master data (e.g., minimum order quantities). Start with collecting the basics. As your company matures, the level of detail required for your planning parameter data will increase.
Collecting the right data is team effort. This is because your whole company needs to use the same data in order to improve supply chain efficiency. For instance, if your accounting team codes carried stock in a way that doesn’t reflect total inventory value, it can be difficult for your operations team to know which item group to target for lowering inventory.
For each type of data you collect and each source you pull from, make sure these factors are considered:
As you build your team, it is important to view demand and supply planning as a combination of analytics, negotiation, planning and firefighting. If we translate these factors into different job functions, we can look at building a team that consists of:
• Demand planners
• Supply planners
• Inventory planners
Demand planners are typically involved in analyzing forecasts, patterns and other data. An analytical mindset that can turn data into decisions is required. Talented demand planners will provide you with reliable data generation to execute your supply and inventory plans.
Supply planners typically have a firefighting and negotiation mentality. Their goal is to ensure a steady stream of supply, at reasonable costs and great quality. Their organizational skills allow them to quickly respond to events and ensure product availability.
Inventory planners are the true architects of the business. They understand your recurring sales patterns, and make sure inventory levels are high enough to deliver great customer service, but low enough to prevent obsolescence. Inventory planners know where inventory should be, and when it should be there.
Many businesses will operate using mixed functions, which is perfectly normal. Not every process or person fits within a tight framework. As an organization, it is important that all facets are covered regardless of job title, and that people operate in functions closely reflecting their skills and capabilities.
Tools & Automation
Without useful and robust tools, planners will be stuck doing the kind of manual labour tasks that inhibit improvement. The two primary toolsets to look at are:
• Data Collection Tools
• Data Management Tools
Data Collection Tools
Collecting data is all about finding a “single source of truth” – your one place to get data that everyone trusts. For most companies, their ERP is a single source of truth. However, while ERPs are great for collecting data, they do not offer the kind of advanced forecasting and planning tools necessary to see the benefits of high-maturity inventory management and demand planning.
ERPs are transactional by nature, and are not designed to perform analytical tasks, or the aggregation / disaggregation of data for planning purposes. The transactional nature of ERPs also restricts them from linking demand to supply planning.
Demand planning requires you to know what data to include and what to leave out, e.g. excluding non-recurring sales from forecasts. ERPs are usually built to support accounting processes and protect the integrity of financial operations, so they don’t allow users to manipulate data by excluding sales. Hence, implementing a dedicated tool that is built to handle factors like sales data manipulation is necessary to improve demand and supply planning.
Data Management Tools
Excel is often praised for its flexibility and ease of use for tasks like tracking inventory levels. However, the disadvantage of Excel is that it’s not scalable. Excel and other spreadsheet programs aren’t designed for multiple people to share files across an organization, which discourages the inter-departmental collaboration necessary to optimize inventory.
Using Excel for demand-supply planning also means dealing with preventable calculation mistakes and a lack of accountability when issues inevitably arise. This limited visibility and security for data entry put your company’s data accuracy and consistency at risk, ultimately resulting in unreliable data.
Unreliable data is a serious liability and should never be used for automation. This is because every kind of automation for demand & supply planning is reliant on an exhaustive approach. Automated tasks cannot discern data integrity, and keep running until they break if bad data is fed into them. The resulting process hiccups and breakdowns cause frustration across the organization.
Your processes will change significantly as your demand & supply planning maturity increases. Your processes will move away from manual, repetitive tasks to focus more on exceptional situations and become more analytical in nature. Mature processes cannot be sustained without the right tools, people and data.
The demand & supply planning processes to focus on are:
• Lifecyle Planning
• Demand Planning
• Supply planning
Managing new product introductions and the discontinuation of old products. Lifecycle management is often overlooked in companies with low planning maturity, and thus offers many opportunities to realize savings.
Properly executed lifecycle planning requires companies to coordinate cross-department or cross-organizational processes for product introductions and discontinuations. Phase-in and phase-out dates will have to be collected by the planning team. As the team collects this data, planners will focus on connecting products considered to be in supersession and performing obsolescence analysis. While this is happening, they must also plan for recurring / forecasted sales and non-recurring demand / pipeline fills.
This is the overarching term used to describe forecasting and other sales-related planning. It typically involves generating short-, mid-and long-term forecasts for the business. Demand planning also incorporates event planning (e.g. promotions, pipeline fills) and sales history management.
Low-maturity organizations should focus on automatically generating forecasts as a first step. Generating forecasts should be automated and be relatively low-effort. Only after you have built these capabilities can you make your processes more analytical.
As forecasts are generated automatically, planners have the time to focus on exceptional demand (e.g., outliers or demand spikes), and cleaning sales history to improve baseline forecasts. Once these processes are mastered, some repetitive exception management can be automated. This automation is very industry and company specific, and requires a good understanding of why and how these exceptions occur.
These processes ensure that product inventory can meet forecasted demand. It typically involves calculations on how much inventory is required, production management, and vendor expedite processes.
Improving demand & supply planning maturity begins with the all-important step of integrating your demand and supply plans. Doing so allows more advanced processes to be implemented, such as automatically generating inventory requirements, and automatic calculation of purchase orders.
As you progress, you’ll be able to generate lists of items that are forecasted to have shortages. Not only will you expedite products that are currently out of stock, but you’re also able to know when products currently in stock will run out. This will make your expedited process more efficient.
Your people, processes, tools and data are what make your inventory management and demand planning work. By assessing each of these pillars you can learn which state of maturity your company is at, and you can start planning for how to reach the next one. As a trusted inventory planning partner to over 1,000 companies around the world, Slimstock has the expertise and experience needed to help your company improve its inventory management and demand planning.
SLIMSTOCK'S MATURITY MODEL ASSESSMENT
We’ve developed a Demand & Supply Planning Maturity Assessment for organizations aiming to comprehend their current standing in the Inventory Management Maturity Model.
This assessment will help you rank your organization across the following dimensions of the maturity model:
- Tools & Automation
Market disruption on a global scale can make you feel like everything is out of your control. The best way to fight back is by bolstering your supply chain so that you’re prepared for backorders, stockouts and supplier shortages.
This is exactly what Kim Olesen did in response to the global disruption that followed in the wake of COVID-19. As Director of Supply Chain for Vallen Canada, an industry leader in industrial supplies and safety equipment, Kim oversaw the company’s response to the pandemic. Slimstock helped Vallen stay nimble and responsive to unprecedented market uncertainty. Here’s what we learned while working with them though the pandemic’s onset, and what you can do to bolster your supply chain against future disruption.
#1 Know What Items Matter Most
Vallen stocks 30k+ SKUs, and Supply Chain Director Kim Olesen said that their biggest challenge was making sure they had the right ones in stock to keep inventory healthy. You might not have as many SKUs to keep track of, but during a disruptive event you need to know which items matter most to you.
• Decide on criteria for identifying your most important items, e.g. high volume, high margin, or a combination of factors like turns, supplier reliability, etc.
• After criteria are in place, make a list of the items that matter most to you.
• Make sure everyone on your team knows what’s on the list. Communicate (communicate, communicate)!
WHERE SLIMSTOCK CAN HELP – Slimstock has a configurable dashboard and an unlimited number of item groups. Once your team decides on criteria for the most important items, identifying and tracking them is easy with Slimstock.
#2 Have At Least Two Ways to Get the Items That Matter Most
Once your most important items have been identified, make a plan for how to keep availability high. And after that’s done, make sure to have a backup vendor in place, too.
Kim and her team at Vallen had this point reinforced when they learned that global market disruption meant they no longer had access to many of the of their A-class items. This meant they had to find, vet, and order from secondary suppliers.
While looking for a secondary vendor, the key points to know are –
• Your customers and sales team need to be a part of the process
Even during nationwide shortages ad drastically increased lead times, your customers will still like what they like. If you aren’t sure that your customers will approve a new product you have access too, ask them! It’s sounds simple, but too often it’s these conversations that are left out when people are stressed and fill rates are dropping.
• Know how much risk you’re comfortable with
Knowing what risks you are or aren’t willing to take will help you make quicker decisions while evaluating new inventory and vendors. When making your own policy, look for things like up-front payments, lead time, production tolerances, material quality, etc.
To mitigate risk, look at financial and economic indicators and see if they’re turning negative or are at risk of doing so. If you’re buying non-core items, watch out for price. If you buy high and then prices drop, you can get hit with losses on a lot of stock.
WHERE SLIMSTOCK CAN HELP – With Slimstock you can see multiple vendors, prices, and lead times to help make informed purchasing decisions.
3. Find a local supplier you trust
Even if you find a secondary vendor for your most important items, the variability of international shipping can keep them on the water or in customs past delivery dates. These aren’t problems that a local vendor has.
Working with local a local supplier allows you to avoid bottlenecks and single points of failure. Placing occasional orders with them can cost a little more money when times are good, but they will be irreplaceable during a global pandemic or the next Black Swan Event.
WHERE SLIMSTOCK CAN HELP – Along with displaying multiple vendors, prices, and lead times. Slimstock makes it possible to set up a ‘load balancing’. With load balancing, you can decide what percentage of your order goes to each supplier, that way you can so you keep everyone happy, including the local guy.
4. Remove the items most affected items from baseline forecasts and KPI
In order to stay nimble, Vallen moved between products and suppliers as needed. They were able to do this by separating out the SKUs most affected by disruption from their regular forecast and using safety stock to maintain fill rates. Separating out these items also prevents them from affecting your KPI, which is a plus for supply chain and management. Kim said that Slimstock helped her team accomplish this by giving them relevant, up to date item information based on demand fluctuation and the tools to segment and order only what was needed.
If you’re currently ordering safety stock ad hoc, you won’t be able to withstand disruption. Developing a safety stock plan means working with your customers to figure out what they need, and what their priority items are. With the right safety stock strategy, you can keep fill rates high for your most important customers without making drastic changes to your base forecast. The wrong strategy can lead to upset customers and costly excess stock.
If you do decide to make long-term changes to your forecast, you should take a snapshot of it before any adjustments are made. Slimstock’s dashboard makes it easy to export your current forecast and have a backup ready in case you need to rollback to previous data.
WHERE SLIMSTOCK CAN HELP – Instead of trying to manage every item the same way - especially during a pandemic - Slimstock allows groups of items to be created and managed accordingly. This way items that are involved in panic buys don’t skew forecast data for items that aren’t.
5. COMMUNICATE, COMMUNICATE, COMMUNICATE!
Kim Olesen doesn’t mince words - “Don’t hide behind emails!” It’s easier to get information (and ask favors) from people you know. So instead of swapping endless emails from your phone, use it to make a call or schedule a video chat and remember to keep building relationships.
Keep a dialog going with vendors to let them know what your needs are and ask if they expect shortages. Knowing those needs requires frequent communication with your sales team and your customers. And this is all dependent on constantly talking to your supply chain team about how they’re executing on the list of your most important items.
But the communication doesn’t stop there!
Disruptions affect everyone differently, and Kim learned that one of the best ways to keep her team engaged was to have “coffee break meetings” where they talked about everything other than their jobs. With many employees working from home, having less in-person interaction can make people start to feel distant. Providing a low-stress, personable environment for people to socialize and connect has meaningful mental health benefits and positive benefits for meeting company goals too.
WHERE SLIMSTOCK CAN HELP – Slimstock provides supply chain teams with the necessary info and insights to help make ‘getting out from behind the emails’ a worthwhile and effective endeavour.
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To read more building materials and industrial supplies related item, Click here.
During these unprecedented times, Slimstock is committed to helping you through this challenging period. Click here to know more.
Getting hit with excess stock hurts, but it’s more than just one shot. First it clutters your warehouse, and like a hammer, it hits again by costing you money as it becomes outdated and obsolete.
In order to avoid the pain of excess stock, you must be nimble and diligent. First, you must know where to look - did your excess stock come from an incorrect forecast, or from ordering over your EOQ to get a rebate? Second, you need to know how to get rid of it if it’s already piling up. In our helpful guide, you’ll learn how to avoid the pain of excess stock now, and move ahead with a better plan.
DOWNLOAD THE GUIDE TO MANAGING EXCESS STOCK!
It’s a given that having clean, reliable data is one of the most important parts of forecasting. But, almost as important is knowing how to use it correctly. At Slimstock, we often talk about the importance of having individual stocking strategies for each of your markets. So, it’s understandable that this same thinking could carry over to forecasting, too. After all, if you’re customizing your assortment for each market, wouldn’t it make sense to forecast each one individually as well? In this case the answer is no.
Let’s say that you have 5 distinct markets that you sell the same brand of nails in, in a few different package sizes. Instead of forecasting each market separately, you’ll get a more accurate forecast by adding up – or aggregating - the total number of nails sold in all markets. This is true regardless of package size, too – if you’re forecasting nails it doesn’t matter if they’re boxes of 50 or 5,000.
Why Aggregation Helps Your Forecast
Aggregation is beneficial because of the law of large numbers. This law states that the larger a sample size you have, the more representative it is of the total population. This translates into more accurate forecasts because it gives you more data to work with. More data is helpful because it:
- Provides more points to analyze for patterns, trends and seasonality.
- Smooths out the random variation that can disrupt models at an item level.
The more specific the segment of data you’re aggregating, the higher chance it has for error as there are usually fewer data available. This can be seen in the below graphic, where a specific item has less overall data available than an entire brand, and so is more likely to have an error.
The benefit aggregation is that it removes outliers from data, however this averaging function can also be a negative depending the segment forecasted. For more specific segments that offer fewer data points, the outliers that are smoothed out may be patterns that deserve attention. For this reason, it’s best to only use aggregation for specific segments like item, location and customer when they have steady demand and predicable seasonality.
For this reason it is important to understand that aggregation isn’t right for ever product in your assortment, but instead should be decided on a case by case basis.
Using aggregation in your forecasts does require you to disaggregate your order quantity back down to an item level once it has been calculated. This means figuring out the total number of 50 count boxes of nails needed versus 5,000 count. There are many different methods for doing this, and our team of expert consultants at Slimstock would be happy to find the best option that works for your business.
Ultimately, disaggregation requires the two qualities mentioned at the beginning of this article – well defined markets and understanding customer behavior. Only by having a detailed knowledge of who is buying your products and why are you able to parse your inventory correctly after disaggregation.
Slimstock helps companies optimize their inventory by taking a complete look at your inventory strategy and adjusting stock levels according to factors like location, market differentiation, seasonality, promotions and even weather. Talk to one of our helpful inventory consultants today and see how we can save you money by lowering excess tock while increasing service levels.
Want to know more?
To read more building materials and industrial supplies related article, click here.
During these unprecedented times, Slimstock is committed to helping you through this challenging period. Click here to know more.