Navigating Volatility: Empower Businesses to Optimize Inventory
As regular readers of the GAINS blog no doubt know, you know that managing inventory has become a critical challenge for companies of every size and industry. The number of daily struggles supply chain professionals face hasn’t shown any signs of stopping; labor shortages, supply chain constraints, and heightened variability continue in today’s ever-evolving business landscape. The days of predictable inventory requirements are long gone, necessitating a shift towards continuous, data-driven assessments and decision-making. Traditional approaches have proven ineffective, leaving companies questioning why they struggle to reduce inventory levels. However, a solution has emerged in the form of GAINS, cloud-based supply chain planning software that enables businesses to navigate this uncertainty and optimize their inventory management.
Focused on delivering rapid results, the GAINS design, demand, supply, and inventory optimization platform offers ongoing cost and profit optimization. Innovative design and the GAINS Proven Path-to-Performance (P3) methodology enables customers to achieve rapid onboarding and tangible results, including increased sales, faster inventory turns, and better service levels at reduced operating costs.
The Impact of Uncertainty:
As companies confront the realities of an unpredictable market, the importance of having the right products in the right place at the right time has reached new heights. Lora Cecere, founder of Supply Chain Insights, highlights the pressing question on every executive’s mind: “Why can’t I reduce my inventory levels?” The answer lies in the outdated “set it and forget it” approach many companies took when initially implementing their advanced planning systems. This set it and forget it” approach to supply chain management is no longer practical due to several critical factors in the current business landscape:
- Increased Uncertainty: The business environment has become more volatile and unpredictable. Companies can no longer rely on static plans and assumptions as market conditions continuously evolve. Continual supply chain disruptions, shifting customer demands, and global events (e.g., pandemics) have introduced significant variability.
- Rapidly Changing Lead Times: Fluctuations in transportation, production, and procurement processes impact lead times, making it crucial for companies to continually assess and adjust their strategies to account for these changes.
- Dynamic Customer Demands: Customer expectations have evolved, demanding faster delivery, product customization, and personalization. To meet these expectations, companies must have real-time visibility into customer demand patterns and the ability to quickly respond and adapt their inventory levels and supply chain processes.
- Supply Chain Complexity: Supply chains have become more complex, often involving multiple suppliers, production sites, and distribution channels. This complexity increases the likelihood of disruptions and amplifies the need for ongoing monitoring and adjustment of inventory levels to ensure the right products are available when and where they are needed.
- Cost Optimization: Inventory carrying costs can be substantial, including expenses related to storage, insurance, and depreciation. Inefficient inventory management leads to unnecessary costs and ties up valuable working capital. Adopting a “set it and forget it” approach prevents companies from actively managing and optimizing inventory levels to minimize carrying costs while meeting customer demand.
Given these factors, it is clear that a static approach to supply chain management is no longer viable. Companies must embrace continuous monitoring, data-driven decision-making, and adaptive strategies to effectively respond to the dynamic nature of today’s business environment. By doing so, they can improve customer satisfaction, optimize costs, and gain a competitive edge.
Embracing Fluid Inventory Policies:
To tackle these challenges head-on, businesses are increasingly adopting fluid inventory policies. “Fluid inventory policy” is an approach that stresses adaptability and responsiveness in managing inventory levels and involves continuous monitoring and adjusting of inventory based on changing market conditions, demand patterns, and other relevant factors. Rather than relying on static or fixed inventory parameters, a fluid inventory policy allows for flexibility and agility in inventory management.
Key characteristics of a fluid inventory policy include:
- Continuous Evaluation: Beyond periodic reviews, this is a proactive approach to monitoring inventory performance.
- Dynamic Demand Forecasting: Accurate and timely demand forecasting is required to anticipate customer needs. This includes incorporating real-time data, market trends, and customer insights to adjust inventory levels accordingly.
- Agile Supply Chain Collaboration: Collaboration with suppliers, logistics partners, and other stakeholders is crucial for implementing a fluid inventory policy. Close partnerships enable faster response times, better coordination, and improved supply chain visibility, allowing for more effective inventory management.
- Real-Time Visibility: Real-time visibility into inventory levels, customer orders, and supply chain activities is essential for implementing a fluid inventory policy. It allows companies to make informed decisions and quickly respond to changes in demand or supply.
- Continuous Optimization: Fluid inventory policies prioritize ongoing optimization of inventory parameters such as safety stock levels, reorder points, order quantities, and replenishment strategies. Companies can maintain an optimal balance between customer service levels and inventory costs by regularly reassessing and adjusting these parameters.
A fluid inventory policy aims to strike the right balance between having enough inventory to meet customer demand promptly while minimizing excess stock and associated carrying costs. By adopting a fluid inventory approach, companies can adapt more effectively to market fluctuations, customer expectations, and supply chain disruptions, ultimately improving operational efficiency and customer satisfaction. Where inventory is no longer considered “free,” fluid inventory policies and processes have become indispensable.
The Financial Impact
CFOs have experienced the financial consequences of inventory issues firsthand. Dave Shrager, president at GAINS, emphasizes the situation’s urgency, stating that CFOs are “seeing multi-million dollars’ worth of holes being burned in their pockets every three months due to inventory issues.” This alarming reality demands immediate action. Companies are witnessing multi-million-dollar losses every quarter, with no end in sight. According to Forbes -“In the automotive industry, fines can be as much as $4,000 per minute for trading partners whose delivery failures cause production downtime.”
Resetting Inventory Policies for Success
Companies must reset their inventory policies to do more with less and mitigate the financial burdens associated with inventory. This entails continuously reevaluating ideal stocking levels, ordering points, quantities, and frequency. It’s key to avoiding misalignment between in-transit and in-stock inventory levels and current market conditions. Inefficiencies and increased costs are the unfortunate consequences.
Companies often fail to reevaluate their inventory policies regularly for several reasons:
- Time and Resource Constraints: Reevaluating inventory policies requires time, effort, and resources. Companies may be occupied with day-to-day operational tasks and firefighting, leaving little room for proactive analysis and policy adjustments. Limited resources, both in terms of personnel and technology, can hinder the ability to conduct regular evaluations.
- Inertia and Complacency: If a company has experienced a period of relative stability or success, there may be a tendency to maintain the status quo and avoid rocking the boat. This complacency can prevent companies from recognizing the benefits of regularly reevaluating and optimizing inventory policies.
- Resistance to Change: Change can be challenging, and some companies may resist altering established inventory policies. There may be concerns about disrupting existing processes or a belief that the current policies have worked well in the past.
- Complexity and Lack of Expertise: Inventory management is a complex task that requires a deep understanding of supply chain dynamics, demand patterns, and optimization techniques. Companies may lack the necessary expertise or access to advanced analytical tools to conduct thorough evaluations and make informed decisions about inventory policies.
The Power of Proactive Monitoring:
Jeff Metersky, Vice President of Solution Strategy at GAINS, underscores the significance of technology platforms that proactively monitor external signals and predict future needs. “When the environment is stable, you can predict the expected results within a tight range.” However, in volatile and uncertain times, it becomes essential to have technology platforms that can proactively monitor external signals, respond to them, and even predict future needs. In 2023 and beyond reactive approaches are no longer sufficient.
The Role of GAINS Supply Chain Planning
Enter GAINS, the cloud-based supply chain planning solution for effective inventory management. With a 97% customer retention rate and a 99% successful implementation rate, GAINS addresses pressing issues by incorporating market signals, behaviors, customer demand, changing lead times, and other crucial elements into the inventory management process. The platform continually evaluates metrics, ensuring order quantities and stock levels align with customer demand.
The GAINS Performance Optimization Platform goes beyond traditional supply chain design and planning; GAINS scales to support your acquisitions or organic growth. GAINS empowers continuous decisioning, delivering rapid results, using AI and Machine Learning (ML) for continuous improvement.
GAINS provides the necessary capabilities for companies to right-size their inventory positions regardless of market conditions. By leveraging advanced technology and proactive monitoring, companies can optimize inventory management and achieve better financial outcomes. In an era defined by unpredictability, continuous inventory right-sizing is a non-negotiable aspect of successful business operations. By embracing data-driven approaches and leveraging innovative technology like GAINS, businesses can stay ahead of the curve and achieve their inventory management goals. Companies can thrive in the face of uncertainty, secure their financial well-being, and position themselves for long-term success with GAINS.
Download the “Making The Case For Continuous Inventory Right-Sizing” to learn more about GAINS, the proven demand, supply, and inventory optimization platform that delivers ongoing cost and profit optimization to companies of all sizes.