The Slimstock Research Centre is constantly pushing the boundaries of inventory management. As excitement around AI & machine learning grows, our team of experts are actively researching how this technology can be applied to overcome the supply chain challenges business face today!
In this infographic, we explore how machine learning is being applied to specific inventory management functions to develop the next generation of supply chain tools!
Forecasting demand for new products
New products are notoriously difficult to plan for. Our team of researchers are exploring how machine learning can be utilised to remove the uncertainty and risk from new product launches. Through applying machine learning algorithms with advanced configuration, AI-based systems will cluster demand history from multiple products to identify and anticipate trends in demand. This, in turn, will enable the system to predict the volume of demand.
The result: supply chain teams will be able to build robust forecasts for new products far quicker than any existing tool available today!
"To sell or not to sell"
How can you determine whether your new product launch has been a success or not? More importantly, how can you determine whether or not a new product should be continued or killed off after the launch phase?
By utilising specialised product classifications coupled with machine learning algorithms and advanced mathematical techniques, the Slimstock Research Centre is exploring how machine learning techniques can help businesses make more proactive stocking decisions. Furthermore, our team is developing a system to identify the necessary selling price of a stocked item required to ensure the product will generate a profit.
Using similar techniques to those relied upon in fraud detection, our team is applying machine learning techniques to enable supply chain teams to identify outliers in demand history and exclude this from any analysis. Furthermore, by utilising advanced neural networks to cluster SKUs that are highly sensitive to anomalies, these products can be managed more proactively.
This development will help to detect anomalies in daily operations like customer transactions, availability and inventory status. As a result, the reliability of both processes and calculations will be drastically improved!
Minimising waste is a complex challenge! Given that waste can be caused by a broad number of factors, the Slimstock Research Centre is developing tools that helps businesses anticipate waste levels and mitigate these causes. Focusing on the optimal order quantity for items where perishability is present as well as the risk of obsolescence at the end of the lifecycle, our team is researching how AI can help supply chain teams to gain greater control over waste.
There is no question that promotions present businesses with some major headaches. However, as AI systems advance, our team of researchers are exploring how such technologies can be harnessed to optimise the decision-making process around promotions. By utilising a technique called ‘deep reinforcement learning’, the Slimstock Research Centre is actively investigating how this development can be utilised to help businesses develop more effective promotions policies.
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Excess stock: we all know that holding too much is bad for business. Yet, based on the experience of the inventory analysts as Slimstock, of all the items in your warehouse, typically, 10% will never be sold. As these items become obsolete, they can cost you a lot of money and needlessly occupy valuable warehouse space. Given that such items are unlikely to bring in any revenue, why are you holding on to them?
Eliminating excess stock takes great courage!
The problem is removing these items from your operation is often easier said than done. Given that you have made a financial investment in these products, accepting that these items no longer offer any value can be a hard pill to swallow.
Although writing off inventory will come at the cost of your margins which won’t amuse the finance director or the board, it is totally necessary. After all, when you consider that you have already lost your original investment in these items, continuing to hold on to excess stock will only cost you more money!
“Painlessly” remove excess stock
So, what can you do to eradicate surplus inventory from your operations while still keeping the potential financial impact to a minimum?
We have outlined 4 simple steps to help you eliminate the excess stock which is holding your business back. Through following these tips, you will be able to minimise inventory costs and free up working capital: both of which will no doubt be music to the financial director’s ears!
Step 1: Physically remove the stock
The first step in managing obsolete stock is to physically remove these from your warehouse and store them in a place where nobody will find them. You could store them in a container or even bury them; doesn’t matter so long as it’s out of sight. Although this may seem like a bold move to effectively “hide” obsolete stock, this is completely necessary. After all, these items are already costing you too much money and for as long as they are in the warehouse, they are nothing more than a distraction which takes up valuable space that could be used by items that actually make the business money.
Step 2: Remove from the administrative process
Once you have identified the excess stock, the last thing you want to do is order even more! Ensure that the obsolete articles are removed from your ERP as well as any other transaction system. If that’s not possible, at the very least make sure that purchase and sales orders for such items can no longer be placed.
Step 3: Financial devaluation
And then comes the hardest (yet unavoidable) step: re-valuation of the stock. Although painful, you cannot afford to postpone this step. If you do, sooner or later you have to go back to the same old conversations with your sales and finance colleagues. And as stated earlier: obsolete stock won’t yield anything so only costs the business more and more.
Step 4: Damage control
The excess stock has now been declared are now ready for destruction. However, if someone is prepared to buy up the stock, then, of course, this is beneficial. Perhaps a buyer is interested or maybe you can ask your supplier to take their old stock back. Another idea is to identify the last customer who made an order and make him an offer he can’t refuse.
You might be asking yourself at this point: why not take these actions while the stock is still in the warehouse? However, based on experience, this can often mean that the obsolete stock remains on your balance sheet at the end of the year!
Prevention is the best cure
After going through the painful task of removing your existing excess stock, the last thing you want to do is to go through the same process again in 6 months’ time. Focusing on optimising stocking policies, services levels and product lifecycles, we help hundreds of businesses just like yours to put in place the right processes, tools and knowledge to minimise the risk of excess!
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We cannot ignore it. The complexity of supply chains has increased exponentially in recent years. Whereas once upon a time, a good business strategy alone would be enough to compete, overcoming complexity is now what ultimately sets a business apart from its competitors; a trend which will only become more prevalent in the coming years.
Not only is there an enhanced level of complexity to overcome, but there is also human-factor which comes into play: we want to understand the solutions that are given to us. This is an issue that many managers care about (or at least should care about). “In the past, everything was better”. Well, when it comes to inventory management, that could just be the perfect quote. Of course, simply yelling this out load will not provide a solution.
About Steven Pauly
As a senior consultant and research scientist at Slimstock, Steven Pauly specialises in the mathematical intricacies of inventory optimisation. In his role as a consultant, he has been involved in various improvement projects at large companies. Furthermore, Steven is attached to the Slimstock Academy where he offers masterclasses in the field of forecasting and other areas of inventory management.
The power of machine learning
Over 50 years ago, our understanding of inventory management increased significantly. As businesses realised the enormous return on investment that could be achieved through effective inventory management, this translated into the publication of lots of highquality literature around the topic.
However, there were no computers back then and solutions were based solely on common sense underpinned by the necessary mathematical analysis. The advantage of this is that solutions were transparent, did not require much effort, provided great insights and were mainly focused on so-called ‘quick wins’. As a manager, you are probably asking yourself: why do anything differently now?
Well, there were many problems back then and more and more continue to arise today. Put simply, solutions based on common sense and mathematical analysis alone no longer suffice.
Perhaps you have heard or read the words: ‘DBC system’, ‘machine learning’, ‘IBM’ and the year ‘1997’ in the same sentence.
IBM’s Deep Blue Chess (DBC) system tells a story that took place in 1997. Through machine learning, they managed to beat the world chess champion. An impressive feat even by today’s standards. The internal employees at IBM boasted that the system understood all possible moves available at any given moment in order to determine the best outcome. This, of course, leans more towards a bruteforce approach which makes it especially impressive when you consider the limited computer power that was available at the time.
Yet, there are some snags to this story. Garry Kasparov, the chess champion (or was IBM now the champion?) demanded a rematch. However, IBM refused and the machine was dismantled almost immediately. This, in turn, raised suspicions that Garry Kasparov was cheated by IBM’s Deep Blue Chess (DBC) system.
In 2016, the power of machine learning was once again exhibited. In a strategic game of “Go”, a machine was pitched against another world-champion. Again, the machine was successful!
However, “Go” differs from chess as there are a far greater number of possible combinations. In brief: ‘Go’ has 10^174 possible board configurations. To give you an idea of how this differs from chess: this equates to 1 million, trillion, trillion, trillion more potential combinations.
But what is machine learning? And what makes it different from the brute-force approach or more traditional mathematics? And why and when should we use it? And what exactly do we need to make it work? These are things that management should be shouting about.
First and foremost, is it the learning component of machine learning that separates it from the brute force approach and traditional mathematics. By this, we mean that the machine has the ability to discover relationships and patterns in a data structure without explicitly naming it. It actually learns the ‘rules’ of the problem. This means that solutions can also work in new, unforeseen situations and can tackle problems with high, underlying complexity and a high degree of uncertainty. And that’s exactly where this concept fits into inventory management.
The fact that machine learning differs from other solution approaches creates new, valuable opportunities. Machine learning makes it possible to improve current techniques in, for example, forecasting, but also to tackle a lot of other issues that were not even considered a few years ago. For example, identifying the actual costs if we are unable to deliver an item, or determining when an item is at risk of obsolesce before it even reaches the end of the product lifecycle. Likewise, in production management, latency and machine downtime issues are also in the machine learning queue.
There is no question that machine learning can be very powerful. However, with huge power comes huge responsibility. The main pitfall of machine learning is that for managers, the perquisites are simply not clear.
The conditions for machine learning
Machine learning is essentially no more than applied mathematics with an emphasis on integrating the current computer power available today. Given the increasing number of potential data sources, coupled with the rapid rate of evolution in computing power, machine learning can be a tremendously powerful tool in inventory control.
Machine learning is statistics on steroids. Yet, it is in essence still “just another tool in the box.” And of course, there are downsides to machine learning. Therefore, it should not become a goal for companies to ‘do’ machine learning.
Machine learning is not a holy grail: it finds its strength in situations where data is abundant but the degree of complexity is so high that traditional mathematics fall short. But exactly how much data are we talking about?
If we have a situation with 5 variables that can each take on 10 different values, then we already have 100,000 possible combinations for the machine to learn. In inventory management, there are often many more variables that can take on multiple values.
If the data is available, machine learning has enormous power. However, in practice, this is the greatest weakness of machine learning. Managers must, therefore, consider how data can be collected in a structured, efficient and ‘clean’ way.
Machine learning also requires a lot of computing power. Some machine learning algorithms are based upon an enormous amount of numerical computations and this can sometimes be a problem in inventory management.
In addition, it is important to keep in mind that solutions in inventory management do not only rely on quantitative results. Ultimately, it is the people who have to understand and work with the solutions. Management therefore has to monitor this closely. As a result, it is important to facilitate knowledge about machine learning and theoretical inventory management across the company.
There are already some cases where machine learning has proven that it can offer a superior solution. For example:
- Optimising promotions policies
- Achieving the optimal sourcing strategy based on a variety of sourcing options
- Providing more robust forecasting and insight over irregular and new items
There are also projects that are in the pipeline at Slimstock. For example:
- Minimising shrinkage through parameter optimisation, root-cause analysis and pro-active signals
- More efficient management of purchasing behaviour through automatic exception management
- Optimising the service level by determining the actual cost of out-of-stocks
- Achieving a holistic approach to multi-warehouse optimisation
- Minimising obsolete stock through root-cause analysis and pro-active signals
Are you interested in how a machine learning project works in practice? Do you want to know more about machine learning and the techniques behind it? Do you want to gain some first-hand experience in doing it? Keep up with the Slimstock website and our LinkedIn page for latest updates!
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UNRAVELING THE SECRET OF OPTIMAL ORDER QUANTITIES
Whether it consists of raw materials or end-products: inventory is unavoidably one of the largest single assets on your balance sheet. In the manufacturing industry, around 37% of total costs consist of inventory costs, while for retailers and wholesalers even more than half of the total costs are caused by inventory. Owning, maintaining, and managing inventory costs a lot of effort and money. However, you need to have enough in stock to deliver customer service: no inventory, no deal. This paper discusses an indispensable inventory management figure: the economic order quantity.
Download or EOQ PDF! this PDF will provide you with the basic knowledge you need for the optimisation of your order quantities. Now is time to put it into practice!
Is your business holding too much stock? In a bid to keep customers happy, many businesses have resorting to offering high levels of inventory across already spiralling assortments. While this ensures that customers have plenty of choice, keeping up with these exploding ranges can prove a constant battle. What steps can building businesses take to overcome these inventory challenges?
How much stock is too much stock?
The honest answer for many businesses is that they simply do not know!
In pursuit of a unique selling point, many businesses have developed extensive assortments encompassing many thousands of SKUs. However, managing such a large number of items brings with it its own range of challenges.
No doubt many business will be all too familiar with consequences of holding too much stock for some products while others are left dangerously exposed to stock-outs!
How can you optimise inventory levels across your long tail products?
80% of a business’s turnover is typically generated by just 20% of the assortment. Yet, many businesses invest a huge amount of resources into managing thousands of items that offer limited value to the business while ignoring those that matter to the customer. The reality for many businesses is that they hold too much stock for the wrong products.
From service levels to stocking decisions, an effective ABC analysis can provide the essential insights required to shape the assortment and help make informed decisions.
In our latest article, we explore 3 top tips you can adopt today to help reduce inventory levels, improve cash flow and help maximise the profitability of your long tail.
Download our guide to adopt a more tailored approach to manage your long-tail assortment.
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With Valentine’s Day fast approaching, this is the time of year where we look back and reflect on our relationships (or lack of…). When it comes to supplier management, the same applies! After all, when better 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.
Download our guide to better supplier management today
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Catch up with part 1 and 2!
As part of our 3 part series, we have focused on 3 areas to optimise your operation.
To catch up with part 1 of the series focused on reducing obsolete stock, click here!
To discover how you could optimise your approach to assortment management, click here!
For work wear suppliers and distributors, maintaining high levels of customer satisfaction is vital in order to succeed. However, with extensive product ranges and lengthy lead times from both European and international suppliers, maintaining healthy inventory levels can often prove a real challenge. Afterall, with constant pressure to offer consistently high levels of availability, businesses must keep the investment in stock under close control. So what steps can you take to keep your customers happy? What can you do to avoid out of stocks? How can you boost the profitability of your operation?
Here at Slimstock, these are just 3 benefits we have delivered to our 750+ customers, including a vast number of work wear suppliers. Over the last 25 years, the combination of our industry-specific knowledge and award-winning software has led to us enjoying a client retention rate that is second to none.
We take pride in developing a strong cultural fit with our customers. Through taking time to understand the intricacies of our customer’s operation, we can adopt a truly customer-centric approach to inventory optimisation. With our passion for inventory management, specialist focus and standard software solution, Slim4, we enable our customers to overcome complexity and outperform the competition.
“With help from Slimstock, our stock turn is now the highest it has ever been!”
We help work wear suppliers go further!
As Europe's leading inventory management expert, we have helped a range of customer in the work wear and safety sector to reduce their supply chain costs while simultaneously achieving huge increased in availability. Our extensive range of supply chain solutions include just some of the following:
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Every year, thousands of people try to give up smoking. When you consider that smoking is both incredibly expensive and hugely detrimental to your health, why wouldn’t you quit? The problem is however that, as habits go, smoking is a difficult one to kick. After all, as soon as you quit, the withdrawal symptoms take hold. Consequently, it’s easy to focus on the absence of cigarettes and lose sight of the long-term benefits of going smoke-free. When it comes to assortment management, businesses face a similar plight!
Like smoking, many business leaders know they are offering products which have a detrimental impact on the financial health of the organisation. However, stubbing these products out is often easier said than done! So what can businesses do to give up bad buying habits and adopt a healthier approach to assortment management?
Make assortment management a priority in 2018!
In the second part of our three-part series focusing on supply chain improvement projects, 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
Download our guide to better assortment management
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!
Missed part 1? Check out our guide to shredding obsolete stock
As part of your assortment management improvement project, you may find a number of products are no longer worth stocking. The question is: what do you do with these items? How can you remove them from your operation without any painful consequences?
What does your historical demand really mean? Can you explain why demand in a particular period is exceptionally higher or lower that what you had forecasted? More importantly, do you know how best to manage these exceptions?
Historical demand data is a critical source of information for assessing both the performance of a business as well as anticipating future demand. Given that this data will be used by a broad range of departments across the business to determine everything from future purchasing requirements to production plans, it is vital that the demand history is as accurate as possible. However, even if the process for recording retrospective demand is flawless, this raw data alone may not be sufficient to base such critical demand forecasts.
After all, how can you be sure that a shift in demand is the result of “normal” business conditions? What if your sales team were incentivised to push this particular product or what if a customer decided to make a larger order than usual to save on logistics costs? Given that such factors may be totally irrelevant for the purposes of forecasting, should such data be included in the forecasting process? If so, to what extent?
Unless you have a complete understanding of the true causes behind an exception, you cannot be sure how relevant such data will be in determining future demand. Ultimately, without working in collaboration with the wider business, you simply cannot guarantee the reliability of your demand history. Equally, unless you review demand history effectively, how can you be sure that your service levels are appropriate?
Watch the video now
Watch out latest instalment of the “5 steps to supply chain success” webinar series as we explore how you can work more effectively with the sales, supply chain, operations and finance team in order to gain a greater understanding of why exceptions in the demand history exist and how you can utilise insights from across the business to manage them. This short recording of the webinar will highlight the steps you can adopt within your organisation to overcome the following challenges:
- Ensure sales related supply chain KPIs (OTIF, fulfilment rates, etc.) are achieved
- Highlight problem areas and identify the true causes of such expectations
- Adopting the right approach to manage demand history exceptions
- Communicate a single "one truth" of historic demand across the business
- Alignment of your forecast to the "real" demand
Every year, China witnesses one of the largest human migrations in the world. As the nation’s workforce down tools and return to their home town’s to enjoy the Chinese New Year celebrations, factories across the country close shop for up to 40 days. Meanwhile, businesses across the rest of the world face a huge amount of supply chain disruption. Given the level of volatility during this time, what can you do to safeguard your operations before, during and after the factory closures?
With extensive lead times of up to several months, importing goods from China can be challenging at the best of times. However, when you consider that you may be left in the dark for over a month during the holiday period and even then, production may still be constrained for a further few weeks, it is vital that steps are taken to minimise the disruption during this time. Failure to do so could result in costly stock outs, missed opportunities and disappointed customers.
Download our Chinese New Year Infographic
Complete the form below to download our infographic and discover how you can help your organisation mitigate disruption before, during and after the Chinese New Year period!