The Smart Forecaster
Pursuing best practices in demand planning,
forecasting and inventory optimization
When implementing inventory optimization, the pressure is on to get results. As the Major League Baseball season starts it’s final stretch towards the playoffs, we thought this analogy might help enforce an important point about the pace of deploying a new inventory optimization process.
It’s the bottom of the ninth and your team is down by a run. You step up to the plate batting lead-off. With the roar of the crowd and excitement in the air, you are tempted to swing hard for that elusive home run. As you dig into the batter’s box, you weigh the options and decide on a better approach: stay patient and do whatever you can to get one base. You don’t try to hit a home run and focus on making good contact with the ball. You know that in this situation, a single will do. By getting on base you help build team confidence. Most importantly, you put the team in a better position to win the game than taking an aggressive but risky swing of the bat.
3 Reasons for a Progressive Approach to Inventory Optimization
When the pressure is on to optimize inventory, you might want to move fast much like the hitter who wants to hit that home run. And in some cases, swinging for the fences might be the recommended approach. More often than not, a progressive approach to inventory optimization is more effective. Here are three reasons why:
- It builds user confidence and creates momentum
- Early success buys necessary time to get full management buy-in
- Corporate roll out of a new process requires progressive evidence of success
A case in point is a multinational company offering next day PC and electronic device repair services. They never know what will come in for repair, but need to set inventory policy to meet their next day service commitment for thousands of parts, while keeping inventory to a minimum. They’ve chosen our inventory optimization software to help and are in the process of implementing. The planning team has taken this progressive approach, working brand by brand to set optimal reorder points and order quantities using Smart’s probability forecasting engine. They selected one brand to illustrate the process and show results: starting with 26 items, they filtered out 14 parts with little or no demand history. Assessing the remaining 12, they showed how to reduce inventory by $51,000 while increasing service levels. While the $51,000 reduction was just a small proportion of the overall benefit, it was easily understood, and presenting it has helped gain support to build out their inventory optimization implementation, brand by brand across the company.
Confidence is Key
User confidence is key and this comes with mastering the use of the inventory optimization software and being able to present results. So, too, is management confidence. We have encountered situations where optimization scenarios have clearly shown opportunities for large inventory savings, but staff were reluctant to seize them. Why? Because they would be reducing inventory, and that felt risky. Again, selecting a subset of items, working through the optimization process, and gaining the top-down management support to make the change made all the difference. And they will substantially reduce their inventory as a result.
Inventory Optimization success comes with a motivated team, the right technology, and solid execution of a good plan. A progressive approach to implementation reduces risk, validates the plan, and provides the foundation for an effective inventory planning and optimization program.
Download Smart Inventory Optimization product sheet here: https://smartcorp.com/inventory-optimization/
Do your statistical forecasts suffer from the wiggle effect?
What is the wiggle effect? It’s when your statistical forecast incorrectly predicts the ups and downs observed in your demand history when there really isn’t a pattern. It’s important to make sure your forecasts don’t wiggle unless there is a real pattern. Here is a transcript from a recent customer where this issue was discussed:
How to Handle Statistical Forecasts of Zero
A statistical forecast of zero can cause lots of confusion for forecasters, especially when the historical demand is non-zero. Sure, it’s obvious that demand is trending downward, but should it trend to zero?
Smart Software’s article has won 1st place in the 2022 Supply Chain Brief MVP Awards Forecasting category!
Smart Software is pleased to announce that our article “Managing Inventory amid Regime Change” has won 1st place in the Forecasting category of the 2022 Supply Chain Brief MVP Awards.