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Inventory Management / Optimisation
Inventory Management / Optimisation
6 min read

Key Areas of Focus for World-Class Wholesale Organisations, Part 3 – Intelligent Replenishment (2/2)

Adam Cavanagh
Published on:
February 04, 2021
Based on our work with clients; analysis of the wholesale and distribution sector; and input from expert consultants; we’ve identified the characteristics that define world-class wholesale organisations. This set of capabilities forms an anatomy that sets apart those businesses who are best placed to succeed as we move forward from the turbulence of 2020.

We have formulated a model for potential, based on what we see as the strongest indicators of organisational health across 6 key areas. Strength in each of the elements gives an organisation both resilience (to absorb and manage market and economic pressures) and strength (to outpace/out-manoeuvre competition and act on opportunity).

We’ve previously introduced the defining feature of intelligent replenishment, here is a recap around automation before we explore the element of service levels.

Removing manual tasks from the decision-making process

Replenishment tasks typically require repetitive administration: extracting data from the system; inputting data to spreadsheets; checking values; updating order quantities; issuing orders. In the complexity created by multiple product lines, suppliers and customers, these manual tasks can quickly become a point of blockage.

Businesses who use too much human resource for these basic replenishment activities, rather than redirecting the focus towards establishing and maintaining relationships along the supply chain will lack the resilience required to thrive. Releasing people from these tasks is less about reducing workload and more about creating the space to carry out crucial high value work.

Key characteristics

Within each area of the anatomy of a world-class wholesale organisation, we have outlined a series of defining characteristics. When considering replenishment, these traits are as follows:

Automatic replenishment: We have systems in place that can automatically adjust replenishment quantities. This enables our team to manage by exception and prevents firefighting.

The organisations best placed to succeed have removed all unnecessary manual tasks from their team’s workload.

Automatic order quantities: Our systems can automatically generate pre-calculated order quantities for unconfirmed purchase orders. This enables us to better focus our management time.

World-class organisations automate baseline processes to allow human judgement to be applied where it can add value, rather than tying up this commodity in unnecessary processes.

Managing service levels: We perform dynamic ABC calculation and manage service levels according to these classifications. This enables us to maintain optimal service levels with clients without carrying excessive levels of safety stock.

It is this power of ABC that we’re now going to explore further.

Why it makes the difference

ABC classification divides inventory into 3 categories:

  • A (most important): this is the smallest category and consists of the items that contribute the most value
  • B (fairly important): generally a slightly larger group of products that contribute value to a lesser degree than those in category A
  • C (least important): typically the largest category, where products contribute the least value to the bottom line.

ABC inventory classification is based on the Pareto Principle. This 80/20 rule assumes that 80% of the value of the business is derived from 20% of the stock. The items in this 20% are the ‘vital few’. Keeping this ratio in mind is important when prioritising which items to carry in order to fulfil demand and meet service level targets.

The power of dynamic calculation

Excel is used to provide a snapshot. Data is typically taken from an ERP system, the calculation is run and decisions are made. This process not only takes up valuable time but the information can also quickly become out of date. As patterns of demand change, products can move rapidly between the ABC categories. Updating existing calculations on a monthly – or even quarterly – basis is time consuming, and the snapshot inevitably becomes obsolete almost as soon as it’s taken.

By automating the process – delivering dynamic calculations – it becomes possible to categorise inventory based on multi-dimensional criteria, including demand, sales frequency and annual value. The classification takes place in near real-time and provides an accurate picture of what is happening on a daily basis. The result is that products are always managed according to the most relevant inventory policy.

Coupled with automated replenishment decisions, this approach allows the strongest firms to remove unnecessary manual effort, releasing the team to spend more time pursuing activities that enable better decision making.

In our experience, it’s difficult for organisations to self-diagnose the key areas where change would have the biggest impact. The diagnostic tool we have created gives you the opportunity to pinpoint priority areas for attention, highlighting specific activities to help you enhance business performance and resilience.

What is the strength and resilience of your organisation? Try our self-assessment tool today.