Over the last dozen years Inventory Optimization (IO) has assumed a crucial role in the omni channel supply chain. Its bottom-line benefits have proven to rival established activities such as network design, transportation optimization, advanced planning and scheduling and sales and operations planning (S&OP). Implementing an inventory optimization strategy is a process, and there are different points of maturity as the process evolves over time.
The omni channel business challenge is the same today as ever—hold the least amount of inventory while meeting customer service requirements—but the methods have evolved.
While components such as re-order point formulas, safety stock calculations and economic order quantities are just as relevant now as they were in the 80’s and 90’s, the inventory optimization discipline today exhibits a never-before possible sophistication. Its activities range from simple inventory management techniques all the way to advanced multi-echelon optimization, from tactical deployment of safety stocks for SKU’s to strategic use of inventory analytics to drive an integrated S&OP process.
As their IO efforts and understanding become progressively more mature, companies traverse a common sequence of stages. Experience shows that all companies fit somewhere along this universal spectrum of IO sophistication and expertise. An organization must first understand where it sits on the IO maturity curve in order to pursue a journey toward superior competitiveness and outstanding profitability.
This white paper defines the stages of the omni channel, inventory optimization maturity curve, and provides an overview of the necessary steps that companies must take to move up the curve and experience greater inventory savings, working capital availability and service level excellence.
From storage capacity options in laptop computers to diameters of PVC pipe, from blade sizes on ceiling fans to the colors of summer skirts, generating more accurate sub-SKU forecasts has a major impact on sourcing, production planning, and meeting actual demand throughout the product life cycle. Proportional profile planning dives deeper into inventory forecasting and helps supply chain teams optimize supply chain performance. This white paper suggests ways for planners to automate proportional profile planning to hand off more accurate, attribute-based demand plans to their sourcing and supply planning teams.
Estimating future demand forecast accuracy is crucial for success yet frustratingly difficult without the proper demand planning software. No other aspect of supply chain optimization has greater impact on business profitability, yet it’s easy to blame a “bad” forecast for poor performance. Providing the best one number forecast requires demand planning software that captures data close to its source and accurately predicts actual demand with enough lead time and confidence to ensure maximum sales and operations performance at minimum cost.
Demand planning software applies science to deliver a better forecast. While forecasts have long been executed using not much more than a spreadsheet and a hunch, leading planning organizations strive for a multi-layered approach that employs a variety of statistical models in an unbiased way to comprehend the many factors that influence demand for products in the marketplace over time. Today companies achieve higher supply chain performance with insightful demand planning software.
This paper outlines four key elements that support effective demand planning and establish fundamental parameters for higher service levels and lower inventory cost. These are the pillars on which competitive advantage and profitability are built:
- Forecast modeling
- Demand aggregation (and disaggregation)
- Management by exception
- Collaboration between internal and external supply chain stakeholders
According to Gartner, the typical company provides support services and parts for an average of seven years after an initial product sale, making service parts planning vital. It’s no wonder aftermarket parts and service areas have profit margins as much as 10 times those for initial product sales. Post-sale service is key to securing customer loyalty, fostering the company brand, and maintaining competitive differentiation. All told, aftermarket service and parts account for 20% to 30% of revenues and about 40% of total profits for most manufacturers.
There are multiple components to effective aftermarket service parts planning, including call centers, returns management operations, and promotions and marketing. However, the key driver of effective post-sale support is service parts management. Service parts management is the process of planning and alignment of service parts inventories, resources, and processes to ensure optimal customer service and response with minimal risks and costs.
Common goals for service parts planning include increasing forecast accuracy for service parts; reducing excess spare parts inventory; reducing obsolete spare parts inventory; enhancing scrapping programs; and increasing service levels by increasing fill rates, increasing product availability or up time.
While there are many challenges in achieving the goals stated above, there is one area that stands above the others. How can we do a better job of planning for products that have intermittent demand?
This white paper describes how Service Parts Planning and Optimization (SPP) is the linchpin of any effective service operation, and explains how to plan and align service parts inventories, resources and processes to ensure optimal customer service and response with minimal risk and cost.
The best recipe for an optimized food manufacturing supply chain involves a blend of demand and manufacturing planning plus inventory optimization. These disciplines help food manufacturing companies achieve higher service levels at dramatically lower inventory cost with maximum equipment utilization. Using data-driven demand planning aligned with analytics-driven production planning, inventory optimization can help mitigate the impact of wild commodity price swings, market variability, seasonality, promotional events.
The food manufacturing supply chain faces all the usual supply chain challenges, from lead times to demand uncertainty, from excess inventory to manufacturing constraints—each given a unique twist due to factors like perishability, short shelf lives, and volatile commodity price fluctuations. To meet business goals and stay competitive, food manufacturers have implemented key strategies to synchronize demand and supply.
Now more than ever, service levels and costs are dependent on planning processes that provide:
- Long-term visibility to uncertain demand
- Efficient capital equipment utilization
- Optimized production given real-world manufacturing constraints
To minimize inventory cost and maximize equipment utilization, the long-term demand forecast must establish the best mix and quantities of products to be produced. Then production planning and scheduling must minimize the impact of finite equipment capacity, supply seasonality, and production line changeovers related to preparation, cooking, filling, labeling, etc. Fresh-pack manufacturing and off-season processing must be planned carefully and sufficient capacity must be allocated to pre-processing of ingredients during the harvest to meet the material requirements for off-season manufacturing.
This white paper outlines how to treat inventory as an input to the business plan — not as an output of the manufacturing process — to maintain sufficient inventories and meet customer service mandates without holding excess inventory.
In the consumer electronics industry, it is crucial to optimize inventory because product shelf lives are short and the greatest margin occurs during a successful product launch. So it’s not surprising that consumer electronics SKUs are proliferating, as are the channels, customers and locations through which these products must be distributed. But 50% of new product introductions fail to achieve success and almost half of those failures are due to initial misreads of market expectations. Why? From a supply chain standpoint, the battle for profitability turns largely on two key disciplines: the ability to accurately plan demand and effectively optimize inventory.
The threats to success are significant in an industry where the profitable period of a product’s lifespan may be as short as three months. Forecasts must often be generated with insufficient precedents. Consumer electronics manufacturers can improve their odds during the short-lived product moment of truth with a more accurate demand planning process and effective multi-echelon inventory optimization (MEIO) strategy. Mastering these disciplines yields big benefits. Companies that do a better job forecasting demand carry 15% less inventory, have 17% stronger order fulfillment, and 35% shorter cash-to-cash cycle times. It is estimated that a 5% improvement in forecast accuracy yields a 10% improvement in perfect orders (and every 3% improvement in perfect orders increases profit margin by 1%).
The motivation is clear. Leading consumer electronics companies must continually drive their demand planning and inventory optimization expertise to new levels of effectiveness. This white paper explains why mastering these disciplines and learning how to optimize inventory yields big benefits, including carrying less inventory, improving the order fulfillment process and experiencing shorter cash-to-cash cycle times.
Private label manufacturing is a demanding discipline characterized by high service levels, thin margins, large SKU counts, and little room for error, making accurate demand forecasting even more crucial. Despite these challenges, from packaged foods in the grocery aisle to fashion-forward apparel labels to panoramic dedicated brands like Martha Stewart housewares, private label products are not only here to stay, they are often positioned to prevail.
The advantage to retailers with store brands has been well understood for years (differentiation, customer satisfaction, brand loyalty, better margins and value). By now, most consumers have tried private label products and realize that an industry-wide shift has happened. Consumers now perceive that private label products deliver as good or better quality as national brands at more affordable prices. Private label goods are usually priced 20% or more below the market leader, and Private Label Manufacturing Association research reveals that American shoppers consistently save about 35% off their grocery bills by choosing store brands over national brands—chalking up some $32 billion in annual savings.
For the manufacturer this opportunity comes with a big challenge: more total SKUs, with lower production volume per SKU, is a recipe for inefficiency, inaccuracy and expensive, reactive decision-making. Maintaining service levels on brands that directly shape a retailer’s core reputation requires the crucial disciplines of demand planning, demand forecasting, inventory optimization, manufacturing planning and replenishment planning (perhaps with vendor-managed inventory) and the ability to balance and align supply to fluctuating demand across multiple time horizons.
This white paper describes how private label manufacturers are mastering the art of customer collaboration and the science of demand forecasting, inventory optimization and manufacturing planning to combat the traditional challenges in this industry (more total SKUs, with lower production volume per SKU) and experience robust, year-over-year growth.
It’s a fact — using supply chain software to make Inventory Optimization (IO) a core competency increases competitive advantage. At every earnings call, analysts question how inventory turns stack up against the competition. Companies who embrace IO as a discipline know exactly where their inventory is and why, and can confidently defend the deployment of company assets. Inventory Optimization has proven to be a sustainable process to free up millions of dollars in working capital by reducing inventory without damaging service levels.
A key characteristic of best-in-class companies is their success in using Inventory Optimization (IO) and cash management techniques to free up working capital. The amount of a company’s working capital trapped in inventory can be expressed as days’ inventory outstanding (DIO). As DIO rises due to factors such as slower sales, longer supply chains, SKU proliferation, and higher obsolescence, return on capital employed drops, which can hamper a company’s ability to compete, especially when financing is hard to come by.
To combat these and other supply chain software challenges, operations research experts developed a discipline called Inventory Optimization. Early adopters realized hundreds of millions of dollars in documented savings through smarter inventory reductions without sacrificing sales revenue or missing customer commitments. Other supply chains took notice and IO began its evolution from an algorithm-driven point analysis to a spectrum of integrated best practices.
This white paper describes five core competencies in your supply chain software to put into practice, including inventory optimization across raw material inventory (RMI), work-in-process (WIP) and finished goods inventory (FGI).
Studies show that a majority of CFOs believe the supply chain and inventory optimization is directly linked to their ability to meet corporate objectives. As the guardian of market value, no one is better positioned to transform supply chain management than the CFO. The supply chain is a natural focus for CFOs because it determines where a major amount of cash flow will be derived and where a major amount of capital will be consumed.
CFOs across the board agree that it is imperative to transform the supply chain into a high-performance competitive advantage. Given that many have varying levels of experience with inventory optimization (IO), this white paper provides a few facts that every CFO should know, including:
- Top concerns of senior supply chain executives are shifting to customer service requirements
- The unique value of IO to the overall supply chain. How exactly does it reduce inventory and increase customer service?
- ERP and Advanced Planning and Scheduling (APS) systems do not optimize inventory across the supply chain
- Inventory optimization can move the organization to an entirely new trade-off curve between inventory cost and service level goals
- What role should the CFO play in IO initiatives?
- The gap in business perspective and communication styles between supply chain practitioners and members of the senior staff must be bridged
This white paper provides a few supply chain facts that every CFO should know, including how inventory optimization can free up working capital and increase customer service, and why ERP systems alone cannot optimize inventory across the supply chain.
A robust and successful SCM system that supports Sales and Operations Planning (S&OP) is vital for bringing together executives from major operational departments — sales, materials/procurement, manufacturing, transportation, marketing and finance — and determining how best to manage company resources and make future investments. Using the SCM system, team members can routinely see and discuss the S&OP process and the various trade-offs between customer service, inventory investments, production capabilities, supply availability and distribution concerns.
Every successful S&OP process requires a strong SCM system with reliable, accurate information regarding time-phased demand, production capabilities, inventory status, and any limitations on resource availability, such as warehouse space, transportation capacity, and limits on cash or credit. A number of tasks and analyses must be completed prior to the executive S&OP meeting in order to make best use of the monthly planning session. These include:
- Innovation and Strategy Review of the impact of new product introductions (NPIs)
- Demand Review of base-line demand as well as demand sensing and demand shaping activities
- Supply Review of inventory levels and production capabilities
- Financial Review of company financial objectives and ability to stay within working capital constraints
- Executive Business Review of future plans and impacts with regard to all major departments
These tasks gather and prepare the full range of information the S&OP team requires for a good decision-making process. The team can confidently make tough decisions that will ultimately determine how well the company performs against its priorities and challenges.
This white paper provides tips to establish a successful S&OP process, including the need to have up-to-date information regarding future time-phased demand, production capabilities, inventory status, and any limitations on resource availability and their influence on each other and overall company results.