For companies with outdated or manual inventory management systems, lack of certainty about the accuracy of inventory levels can make managers and decision-makers apprehensive during busy times.  If calculations and inventory management practices are off, companies may find themselves with stockouts. This can cause customers to cancel orders, or force the company to utilize expedited shipping which drives up cost.  Or they may find themselves with too much stock, tying up working capital, and reducing cash flow.

One study conducted by consulting firm The Hackett Group, Inc. found that the largest 1000 US companies alone had as much as $1.1 trillion dollars tied up in inventories.  And that number must certainly be higher when considering all companies including small and medium-sized businesses (SMB). To achieve optimal inventory levels and meet service level goals, businesses are looking to inventory optimization to ensure the right stock levels and to reduce the amount of working capital required to run their operation. 

This optimization isn’t just improved administrative functions such as inventory counting or cycle counting.  It means both demand and supply volatility must be included to guarantee the right inventory. 

Common Sense Automation 

Any assessment of improving inventory management will include common sense steps to reduce time, labor and physical process steps.  One example is the warehouse layout. 

Since the average sized warehouse today is 180,000 square feet compared to 127,000 square feet 14 years ago, an optimal layout will mean fewer steps for staff members and reduced time on task. But a well-designed layout and physical process changes only go so far.  And as warehouse size has increased, the need for automated warehouse management platforms that leverage real-time data using advanced analytics is even more important.

Another example is improving vendor relations.  With complex supply chains sometimes stretched globally, vendor management is key to inventory success.  By leveraging history and scale, automatic reviews and contract renewals can be coupled with standardized communication channels to set the pace for improved relations and improved cost.

Tips for Optimizing Inventory Through Automation

Physical and administrative changes can only go so far in optimization.  And most of these changes can be addressed through continuous improvement methodologies designed to do just that.  But to truly improve inventory management, companies should consider inventory planning and automation software to introduce systemic changes within the organization.  Here are 6 tips that improve inventory performance with automated software and ensure that companies have the right inventory at the right time.

1. Keep Accurate Records – While this may sound obvious, judgement-based, manual inventory systems have always been error prone and backward-looking.  Data integrity begins to degrade as soon as transactions resume and there is always the chance that records in one department of the company do not align with others.  Automated software will allow you to look at the inventory holistically and include on hand, committed vs available stock and other important real-time data.
2. Develop Better Planning – Inventory optimization software includes demand planning in the inventory process.  This allows you to keep an eye on real-time metrics and adjust stock levels as products reach the end of their lifecycle or as new products are introduced.  You can also adjust based on seasonal changes or unexpectedly slow-moving products.  This software uses advanced algorithms to include demand planning at the stock level for expected future events, a benefit not available in traditional inventory management systems.
3. Integrate Disparate Systems – Most people have been part of haphazard, chaotic inventory systems that use several sub-systems combined with Excel spreadsheets.  Data is collected differently, recorded differently and prone to errors.  To the degree that these subsystems have analytical capability, the results must be rationalized before managers can make decisions.

Today’s inventory planning and optimization software can be linked to key business systems such as an ERP to un-silo data and standardize it across the organization.  This improves timing and quality of transactional data making it possible to automate purchasing and push orders to the company ERP system seamlessly.  Time-phased inventory can be accurately forecast across the entire organization to automate replenishment timing and quantity.

1. Segment Your Inventory – Inventory planning and optimization software isn’t a warehouse management system for counting stock.  It is a deep analytical tool that gives companies the ability to manage inventory based on value.  Items can be prioritized for value by revenue, margin, cost, or units with ABC analysis.  It may also include variables such as holding value and movement frequency.  It can automatically apply structured policies for management of each segment allowing manual control of specific items (such as new product introductions) and to help review obsolete or slow-moving items.
2. Avoid Economies of Scale – Many companies buy in bulk based on cost.  But this cost-based purchasing logic can result in overstocks and increased holding cost.  It only uses cost as a factor on the front end of the cycle.  Because inventory planning and optimization software allows you to use demand planning, forecasting and advanced analytics to look at inventory holistically, it can calculate optimal economic order quantities, lead times and stock levels to effectively manage inventory to support service level goals.  This delivers a better systemic cost compared to bulk buying when all variables are analyzed.
3. Deploy Multi Echelon Inventory Optimization – Traditional inventory management was one dimensional, delivering what was needed to produce and ship products.  With advanced planning and optimization software, companies can deploy multi-echelon optimization that looks at inventory three dimensionally.  The software is flexible in that it allows the system to select a “best fit” model as well as user-specified statistical forecasts.  This advanced modelling allows a company to look at the inventory from the standpoint of the entire supply chain to include other types of inventory, cycle stock, prebuilds and safety stock based on time-phased demand.

Improving inventory management doesn’t need to be as stressful as in the past.  By deploying advanced inventory planning and optimization software, companies can take command of their inventory and manage it to fulfill service level goals and drive value through the inventory process.  DemandCaster delivers powerful, easy to use supply chain planning software to optimize inventory and maximize system efficiency and financial performance.