Many businesses are still reliant on spreadsheets, snapshots, and individuals’ knowledge, when there is a better option out there. One that can enable your planners, buyers, and the rest of the team, to work from a single version of the truth and run with their heads up. When you’re operating in an ever-changing environment, you’re only ever as good as your ability to forecast and plan effectively, let’s discuss a couple of points worth keeping in mind.
When the environment changes, the models struggle
In the digital age, and with modern ERP systems, there is a wealth of data and information to feed into your forecasts. Yet spreadsheets, plug-ins, and homemade models still tend to be the default options for inventory management.
In tough economic times, like the ones we’re experiencing now, cash is king. Tying up working capital through holding unnecessary stock, places a drag on the business by reducing resources. However, with disrupted supply chains thanks to COVID and the war in Ukraine, buffer stock seems desirable. Therefore, being able to rely on better forecasting and demand planning to optimize inventory can deliver benefit straight to the bottom line, reducing risk and increasing resilience. This simply isn’t achievable within a system reliant on spreadsheets and homemade models lacking in agility.
Sales and production plans are ‘push’ plans – aimed at selling or producing as much as possible. Finance teams produce detailed financial forecasts for the business. Production planners or buyers then painstakingly calculate requirements and outputs. However, these plans are rarely integrated and objectives can sometimes become contradictory.
Demand planning involves looking at the factors ‘pulling’ actual sales. Adjusting production and supply chain resources based on consumer demand and specific promotional response has several advantages, including:
- Increased customer service with reduced inventory levels
- Improved supply chain capacity and cost control
- Increased supply chain responsiveness and flexibility
However, consumer demand and promotional response can be volatile. This is particularly the case when viewed across multiple retail clients and geographies, compounded by a high volume of SKUs.
The systems, data sets, and models required for the demand planning process at this level are complex. They take time to pull together, which means that they are produced less frequently and end up being based on snapshots. Furthermore, the overall accuracy of the models applied cannot be reviewed often enough to keep pace with any volatility.
Advanced forecasting and automated replenishment
Systemized forecasting, where the right models are applied based on the latest patterns of demand at SKU level, creates multiple benefits:
- Resource efficiencies – less time spent on data extraction, manipulation, and spreadsheet updates
- Increased accuracy – plans can be created based on what is happening, in real-time
- Automation – basic, repetitive decision making that doesn’t require human judgement or innovation can be handled by technology
- Optimization for service levels.
Once safety stock is being calculated in near real-time based on real data, it allows the business to work according to a single, integrated plan.
Releasing the true cost of inventory
Few companies realize the full cost implications of holding inventory. Until it is used or sold, that stock provides no value to a business yet there is a cost to holding it thanks to warehousing and storage charges. Variable product lifecycles can result in stock being discarded entirely.
For planning to be effective, it must involve truly cross-functional engagement across a business. It also must be aligned to what is actually happening, in real-time. Achieving this enables inventory optimization which balances cash flow and service levels.
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