Inventory management is a critical aspect of any business. Particularly in this recent era of uninterrupted instability, successfully managing inventory involves continually making decisions about how much stock is needed, where it should be stored, when it should be moved or restocked, and how to configure the rules and policies to manage it dynamically. Companies should constantly be examining their business and regularly asking themselves:
- How should I configure my inventory to support the company’s service strategy?
- Why is my stock so high for a particular product or region?
- How should I allocate limited inventory?
- What is the optimal way to fulfill customer demand? Should I place new orders or request transfers from other locations?
- Is my current inventory policy optimal? If not, what do I need to change?
- Which materials should I: start stocking, stop stocking, or significantly change the target fill rates for?
- Am I accounting for variability, profitability, service, and risk to set up inventory policies and rules?
These are difficult, complex, constant, and dynamic decisions to make; they require a lot of thought and consideration to get right and should be backed by reliable data and supported by advanced analytics. Unfortunately, many companies make inventory decisions daily without the proper tools and processes. With the lack of a comprehensive inventory management process, businesses can make poor decisions without realizing the negative impact on their financials, customer retention, and loyalty rates, all while increasing discontent among the team in charge of the process.
Using Automation to Optimize Planning Resources
Automation is critical to the success of an inventory management program. It can help make better use of the time and efforts of inventory planners. Using technology, it’s possible to automate many repetitive and time-consuming tasks that make up much of the day and free up planners to focus on more complex, meaningful tasks that require a “human touch.”
For example, some GAINS customers have found that automating the purchasing process can help reduce the time spent on manual data entry, increase the accuracy of the information, provide agility to the process, and improve employee satisfaction. Long-time GAINS customer Grimco found, “As our business has grown over the last few years, we’ve leveraged automation so that we haven’t had to increase our team size. Automation has essentially allowed us to do more with less; even though we’re not downsizing the team, we’re not adding the same amount of resources we would have two years ago to keep up with the growth of our business.”
Ready the Team for Change Management
Embracing change can be difficult for any organization, but it’s essential to do so to achieve the best results. In addition to automation, it’s also vital to consider change management regarding inventory. Policies and processes that have been in place for years may no longer be effective or efficient, and it may be necessary to make variations to keep pace with the evolving demands of the business. From the start, it’s essential to communicate the reasons behind the new schema and the expected outcome. Then follow up by sharing every win along the way. Having visibility of the measured benefits is always a key to success. Sharing progress updates helps the team to understand what effect the changes may have on them and serves to increase the rate of adoption of new practices. You can find tips on creating a change communication plan here.
Finding the right tool for the job
To make the correct inventory decisions, planners need to have tools that allow them to continuously design, plan and execute the supply chain based on optimal inventory rules and policies. They also need to focus their time on handling the exceptions that matter the most. The key to answering business questions around inventory is to have the power to understand and connect service strategy, demand, supply, variability, capacity and restrictions, cost, revenue, and risk. Every company’s journey to success is unique, and the solution should be tailored to support each company’s strategy.
Lots of companies use spreadsheets. However, spreadsheets like Excel have their limitations. While they can handle many aspects of data management, they are not always sufficient for all use cases, particularly in a complex inventory environment. Furthermore, spreadsheets require substantial manual effort on the part of planners to maintain and can lead to costly errors. According to the European Spreadsheet Risks Interest Group, “more than 90% of spreadsheets contain errors. Because spreadsheets are rarely tested, many errors go undiscovered. As a result, frequent users of spreadsheets are overconfident. Because they rarely look for errors, they rarely find any; because they don’t find any, they assume their spreadsheets are correct. Meanwhile, the truth is that some 50% of spreadsheets used operationally by businesses have material defects.” Moreover, Excel often relies on a user’s knowledge and experience to provide results. If that person is replaced or leaves the company, their knowledge and expertise are lost, leading to a knowledge transfer problem.
Another struggle for companies using Excel is the ability to adopt valuable instruments quickly, for example, in the demand forecast process, one practice to get better demand estimates is leveraging external data. Industries such as the beverage and automotive sectors have been utilizing external data to improve their forecasting for years. For example, beverage companies use weather trends to predict product demand, and car companies consider population growth and family compositions to determine which types of cars will be in demand in different regions. The use of external data is just a piece of the solution. To find a truly useful tool, you need to understand what the key strategic aspects of the supply chain are. During the pandemic, some businesses turned to tools like Google Trends to understand people’s movements and stock their retail stores accordingly. Additionally, e-commerce platforms such as Amazon provide sales forecasts, which can be used to make more informed decisions.
Adding exogenous or third-party data sources is cumbersome in Excel, with more modern supply chain planning solutions like the GAINS Performance Optimization Platform being more flexible and accurate.
Demand forecasting is a key piece to optimizing decisions, but it is not the only or even the main one. In the end, inventory optimization is a complex and dynamic process that requires a set of interconnected tools to create an agile and resilient supply chain. By automating specific tasks, optimizing the time of inventory planners, embracing change management, and adopting the right solution, it’s possible to achieve a more effective planning team and a happier one too.
Learn how to make the most of your planning resources with GAINS. Request a demo today.
