Many companies still do not understand inventory management techniques in many aspects. It is only within the last few years that companies have made a direct link between effectiveness in managing inventory and corporate cash flow.
In today’s economy, organizations are facing a number of issues that are adding to the complexity of the supply chain network. The problems and challenges of inventory management must be tackled holistically to bring down inventory levels while maintaining or improving customer service levels.
Strategies for Improving Inventory Management
Given the many challenges that companies face, there is no single strategy for improving inventory management. Inventory planning software can help companies make their supply chains more efficient and increase their forecast accuracy.
Below are two strategies through which companies can use inventory planning software to improve and expand their current inventory management practices.
a) Get more granular with safety stock management
Many companies today still rely on antiquated or simplistic means of determining stock levels in different parts of the supply chain.
The most common method is an SKU based segmentation in which inventory is classified into three or four categories. This simple categorization is based on either value of volumes. Today’s complex supply chains cannot be adequately served with such an approach. Leading organizations have taken their safety polices much further in terms of both cycle times and granularity.
For example, companies are using many more attributes associated with each SKU to create large numbers of item classes. These are then assigned different policies, which are more than the standard three or four levels most companies still use.
Organizations can use inventory planning software for the more granular segmentation. Managers can use the software to identify attributes that can then be used for the groupings and to understand how best to apply differentiated policy. In such a case, outside assistance may be required if a company is looking to make a move to the higher level of safety stock management.
b) Tactical planning
Supply chain inventory planning software have traditionally been used at a strategic level to support redesign of an entire distribution network or supply chain. However, the software can also be used on a tactical basis to support supply chain processes decided on a quarterly or even more frequent basis.
Using the software, managers can make decisions about the network trade-offs between customer service, transportation costs, and inventories. However, in today’s economy, operating under the uncertainties of globalization and other dynamics is challenging current network strategy. Therefore, the “optimal” strategic plan set at a given point will begin to degrade.
Companies can make changes with the supply chain network on a more frequent basis. Data from inventory planning software can help in decisions such as identifying:
i) How products should flow within the existing network
ii) The current trade-off between inventory and transportation
iii) The products to be made and which ones should be sourced from outside
To make this change, companies can “rent” or “buy” an inventory optimization tool for a given planning process. Whether renting or buying, the tool will become a permanent part of the on-going decision process.
c) Manage Multi-Channel Complexity and Reduce Inventories
Many large organizations are dealing with the challenges of multi-channel management. As companies mature different channels, there is often the need to determine whether the channels can be served out of one inventory pool. However, doing so creates a number of challenges, such as how forecasts are aggregated. This, and other challenges, can be tackled by distribution order management (DOM) software.
DOM solutions not only help with inventory management, but are also designed to capture orders from multiple sources and identify the most efficient ways to fulfill the orders. By using the software, companies can present a consistent process to customers regardless of the channels. DOM solutions can also be used to improve inventory levels in multi-channels in the supply chain.
If you are looking for opportunities that might have the biggest impact on your supply chain success, make inventory planning software a consideration.