Improve Forecast Accuracy, Eliminate Excess Inventory, & Maximize Service Levels
In this Video Dr. Thomas Willemain, co–Founder and SVP Research, talks about forecast-based inventory management policy, also known as MRP logic. This is the fourth in our series on major approaches to managing inventory. We begin by looking at some very simple and then more robust models of inventory dynamics that help us determine how much to order or manufacture and when. We then consider how to calculate lead time and account for lead time variability. Tom concludes by describing the importance of safety stock, it’s role in properly buffering against demand and supply uncertainty, and how best to calculate it.
RECENT POSTS
Why Inventory Planning Shouldn’t Rely Exclusively on Simple Rules of Thumb
For too many companies, a critical piece of data fact-finding ― the measurement of demand uncertainty ― is handled by simple but inaccurate rules of thumb. For example, demand planners will often compute safety stock by a user-defined multiple of the forecast or historical average. Or they may configure their ERP to order more when on hand inventory gets to 2 x the average demand over the lead time for important items and 1.5 x for less important ones. This is a huge mistake with costly consequences.
Direct to the Brain of the Boss – Inventory Analytics and Reporting
In this blog, the spotlight is cast on the software that creates reports for management, the silent hero that translates the beauty of furious calculations into actionable reports. Watch as the calculations, intricately guided by planners utilizing our software, seamlessly converge into Smart Operational Analytics (SOA) reports, dividing five key areas: inventory analysis, inventory performance, inventory trending, supplier performance, and demand anomalies.
You Need to Team up with the Algorithms
This article is about the real power that comes from the collaboration between you and our software that happens at your fingertips. We often write about the software itself and what goes on “under the hood”. This time, the subject is how you should best team up with the software.
Recent Posts
Why Inventory Planning Shouldn’t Rely Exclusively on Simple Rules of ThumbFor too many companies, a critical piece of data fact-finding ― the measurement of demand uncertainty ― is handled by simple but inaccurate rules of thumb. For example, demand planners will often compute safety stock by a user-defined multiple of the forecast or historical average. Or they may configure their ERP to order more when on hand inventory gets to 2 x the average demand over the lead time for important items and 1.5 x for less important ones. This is a huge mistake with costly consequences. […]
Direct to the Brain of the Boss – Inventory Analytics and ReportingIn this blog, the spotlight is cast on the software that creates reports for management, the silent hero that translates the beauty of furious calculations into actionable reports. Watch as the calculations, intricately guided by planners utilizing our software, seamlessly converge into Smart Operational Analytics (SOA) reports, dividing five key areas: inventory analysis, inventory performance, inventory trending, supplier performance, and demand anomalies. […]
You Need to Team up with the AlgorithmsThis article is about the real power that comes from the collaboration between you and our software that happens at your fingertips. We often write about the software itself and what goes on “under the hood”. This time, the subject is how you should best team up with the software. […]
Rethinking forecast accuracy: A shift from accuracy to error metricsMeasuring the accuracy of forecasts is an undeniably important part of the demand planning process. This forecasting scorecard could be built based on one of two contrasting viewpoints for computing metrics. The error viewpoint asks, “how far was the forecast from the actual?” The accuracy viewpoint asks, “how close was the forecast to the actual?” Both are valid, but error metrics provide more information. […]
Using Key Performance Predictions to Plan Stocking PoliciesI can't imagine being an inventory planner in spare parts, distribution, or manufacturing and having to create safety stock levels, reorder points, and order suggestions without using key performance predictions of service levels, fill rates, and inventory costs. […]
Inventory Optimization for Manufacturers, Distributors, and MRO
Top Differences Between Inventory Planning for Finished Goods and for MRO and Spare PartsIn today’s competitive business landscape, companies are constantly seeking ways to improve their operational efficiency and drive increased revenue. Optimizing service parts management is an often-overlooked aspect that can have a significant financial impact. Companies can improve overall efficiency and generate significant financial returns by effectively managing spare parts inventory. This article will explore the economic implications of optimized service parts management and how investing in Inventory Optimization and Demand Planning Software can provide a competitive advantage. […]
Centering Act: Spare Parts Timing, Pricing, and ReliabilityIn this article, we'll walk you through the process of crafting a spare parts inventory plan that prioritizes availability metrics such as service levels and fill rates while ensuring cost efficiency. We'll focus on an approach to inventory planning called Service Level-Driven Inventory Optimization. Next, we'll discuss how to determine what parts you should include in your inventory and those that might not be necessary. Lastly, we'll explore ways to enhance your service-level-driven inventory plan consistently. […]
5 Steps to Improve the Financial Impact of Spare Parts PlanningIn today’s competitive business landscape, companies are constantly seeking ways to improve their operational efficiency and drive increased revenue. Optimizing service parts management is an often-overlooked aspect that can have a significant financial impact. Companies can improve overall efficiency and generate significant financial returns by effectively managing spare parts inventory. This article will explore the economic implications of optimized service parts management and how investing in Inventory Optimization and Demand Planning Software can provide a competitive advantage. […]
Bottom Line Strategies for Spare Parts PlanningManaging spare parts presents numerous challenges, such as unexpected breakdowns, changing schedules, and inconsistent demand patterns. Traditional forecasting methods and manual approaches are ineffective in dealing with these complexities. To overcome these challenges, this blog outlines key strategies that prioritize service levels, utilize probabilistic methods to calculate reorder points, regularly adjust stocking policies, and implement a dedicated planning process to avoid excessive inventory. Explore these strategies to optimize spare parts inventory and improve operational efficiency. […]