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Inventory Management / Optimisation
Inventory Management / Optimisation
4 min read

Making the Right Inventory Optimization Decisions

Adam Cavanagh
Published on:
August 26, 2020
The success of inventory optimization – and ultimately, positive customer service – relies on a multitude of decisions.

Choices are required at every stage of the process to ensure not only that the right products are in the right place, at the right time, but also that they’re supplied at the right price via the most cost effective method to minimise stock holding charges and maximise service levels (and therefore sales). This is the same for every product.

Operating in a dynamic marketplace, running thousands of product lines in turbulent times, creates an overwhelmingly large number of decisions. On both a daily and weekly basis.

At a conservative estimate, 1,000 products might require up to 15,000 decisions:

  • Assortment decisions – which products should be introduced? Which need retiring?
  • What does the demand profile look like?
  • Has there been a step change in the demand profile?
  • Were last month’s sales exceptional?
  • Is demand being influenced by seasonality?
  • Is the trend going to remain in place?
  • What inventory forecasting method should be applied?
  • How much stock should we hold?
  • What’s the minimum order quantity?
  • What’s the optimal order quantity?
  • Should stock be transferred to another location to help with order fulfilment?
  • What’s the most efficient way to fill the next shipping container?
  • Do the annual holding costs outweigh the margin?
  • How many components are required to manufacture kit products?
  • How long will it take from order to arrival?
  • What are the credit terms – what’s the timeline from order to stock to sale to cash?

Equipping yourself to answer the questions

The answers to all of these questions lie in data from the ERP system. To be able to make informed decisions, the right data needs to be extracted and manipulated into the correct format. Getting to the point of producing the calculations required to find the required answers typically involves a tangled web of spreadsheets stretched across your organisation.

Creating and maintaining this tangle of spreadsheets – checking for errors, comparing and attempting reconciliations between business functions – requires a lot of man hours. Although the initial data all originates from the same single source, differing approaches and versions across the business can result in a confusion of ‘insight’ driving decisions.

Consider the research that estimates that 94% of spreadsheets contain errors and their lack of capability within a multi-dimensional approach, and it’s easy to reach the conclusion that Excel just isn’t powerful enough to provide answers to all of the questions you need to ask. 

A better way to work

Ultimately, successful customer service (and higher sales) through inventory optimization relies on those making the decisions having the right information. The team managing your supply chain can only maintain the complex relationships involved if they have access to the basis for the right answers.

To achieve this in a dynamic marketplace requires a tool that has been developed with best practice business processes in mind. AGR S&OP software allows you to improve forecast accuracy, optimize inventory levels and reduce stock value commitments. This simple solution is cost efficient, easy to adopt as an add-on to your existing ERP system and provides a single version of the truth and the possibility of an integrated function across the process.

Let us show you the impact that the AGR software can have upon your decision-making processes – get in touch today to see just how much of a difference it could be making to your service levels.