Sagor Sarkar UMass Lowell An auto parts supplier sells Hardy-brand batteries to car dealers and auto mechanics. The annual demand is approximately 1, batteries. The supplier currently orders batteries per month.
Traditional inventory systems have always focused on improving forecasting, while the forecast is only a small part of the overall inventory management problem. A new paradigm is needed — one which brings all factors into play, and which enables a proactive approach to solving inventory problems before they occur.
However, order quantities, safety stock and lead time represent only a minority of the sources of inventory problems. Poor execution is common at all levels of the supply chain and starts at the store level. Promotional displays or inventory make it to the store but not to the floor. Product is put on the wrong truck at a distribution center, sent to the wrong store, or is late to a distribution center.
Inventory management problems communication is common both within and across supply chain functions, and takes a particular toll in data analysis and collaboration. Analysts, category managers, sales managers and supply chain personnel look at problems in different ways and focus on different aspects of them.
Getting insights from data is often a complex process for CPG data analysts, making collaboration difficult. Poor decision-making is endemic at all Inventory management problems of the supply chain, and is often the result of both poor execution and poor communication.
There are so many different SKUs in so many different stores, from so many different distribution centers, in so many different locations in the stores, under so many different conditions.
Consequently, shortcuts are almost always taken, which may compound the problem or lead to new ones. A Virtuous Cycle in Inventory Management Above, we outlined some of the issues with traditional inventory management. In particular, that poor execution, communication and decision-making in inventory management contribute to a vicious cycle of declining sales, margins and customer loyalty.
To address this vicious cycle, the CPG supply chain needs a system to identify and correct problems before they occur. This requires monitoring of many different genres of information — POS, shipments, orders, forecasts, forecast errors, on-hand inventory, inventory position, number of stores selling, etc.
Let us explore how to create a virtuous cycle: To implement this approach, a system is needed to alert users to what needs attention, and enable them to quickly resolve issues.
It should help users identify patterns of exceptions and support collaboration to define and implement prevention mechanisms, using levers not limited to safety stock, forecasting, and ordering algorithms.
This is actually the supply chain management implementation of business process integration. Advanced inventory management solutions are discussed within the vague context of multi-echelon inventory systems or warehouse locations.
But where do stock-outs hurt the most in terms of lost revenue? At the retail shelf. To demonstrate the value of the Pinpoint-Prioritize-Prevent approach, here is an example using on-shelf availability OSA. Users create a set of business rules to identify OSA risks and issues, assigns stores and item groups to the set of rules, and enables algorithms to process the rules.
Designated individuals receive OSA alerts based on analysis of data and their defined business rules, so immediate issues can be resolved at the store or DC level. Users drill into the data to make sense of trends and patterns, and quantify the value of revenue at risk to determine which issue to resolve first.
At first, such a system is likely to generate many exceptions. As underlying problems are addressed, fewer exceptions will be generated — capturing more potentially lost sales. When inventory is driven by actual demand, in addition to forecast, the supply chain operates at greater efficiency and at increased profit margins.
CPG companies that fail to take an agile approach to inventory management may continue to struggle with on-shelf availability, and may find that consumers and retailers look elsewhere for the products they want.
Download the White Papers:automated inventory management solutions can significantly improve charge capture by away from patients are “fraught with problems,” according to Shastany. An automated system makes it easier to proactively remove expired, recalled or obsolete products, according to Damron.
Inventory management can be tedious but using a streamlined process, preferably one with a reliable tool, will greatly reduce mistakes and improve operations which can lead to more sales.
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These days, I understand just how important solid inventory management is. Inventory is a placeholder for money. You paid money for it, and you’ll get that money back (and then some) when you sell it. A lot of issues can pop up related to inventory management. These types of problems can cripple unprepared businesses.
For example. Traditional inventory systems have always focused on improving forecasting, while the forecast is only a small part of the overall inventory management problem, most of the issues occur at the retail store shelf, which aren’t included in forecasts.