Inventory Control Best Practices

Smart Software

Inventory control is the element of your inventory management system that involves what’s currently in stock. Inventory control requires being aware of the state and placement of all the items to maximize the merchandising process. With the correct technology in place, it is possible to monitor items more effectively, organize things better, generate accurate data and reports, optimize inventory spaces, and reduce overstocking and stockouts —all leading to increased revenue.

For a more efficient inventory setup, consider these best practices:

 

  • Develop a well-organized floor layout. The warehouse must be ordered logically.
  • Use clear signs and labels. Relevant labeling expedites delivery. Label racks, containers, and items clearly.
  • Apply cycle counting.  Cycle counting involves numbering tiny pieces across cycles.
  • Using inventory optimization software helps you identify the least-cost service level based on your targeted stockout risk with minimal inventory carrying cost.
  • Use warehouse management systems. Inventory control systems and Warehouse management systems streamline item tracking and decrease human error.
Overcoming Uncertainty with Service and Inventory Optimization Technology

Overcoming Uncertainty with Service and Inventory Optimization Technology

In this blog, we will discuss today’s fast-paced and unpredictable market and the constant challenges businesses face in managing their inventory and service levels efficiently. The main subject of this discussion, rooted in the concept of “Probabilistic Inventory Optimization,” focuses on how modern technology can be leveraged to achieve optimal service and inventory targets amidst uncertainty. This approach not only addresses traditional inventory management issues but also offers a strategic edge in navigating the complexities of demand fluctuations and supply chain disruptions.

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Head to Head: Which Service Parts Inventory Policy is Best?

Head to Head: Which Service Parts Inventory Policy is Best?

Our customers have usually settled into one way to manage their service parts inventory. The professor in me would like to think that the chosen inventory policy was a reasoned choice among considered alternatives, but more likely it just sort of happened. Maybe the inventory honcho from long ago had a favorite and that choice stuck. Maybe somebody used an EAM or ERP system that offered only one choice. Perhaps there were some guesses made, based on the conditions at the time.

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Why Inventory Planning Shouldn’t Rely Exclusively on Simple Rules of Thumb

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.

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Finding Your Spot on the Tradeoff Curve

Finding Your Spot on the Tradeoff Curve

Managing inventory, like managing anything, involves balancing competing priorities. Do you want a lean inventory? Yes! Do you want to be able to say “It’s in stock” when a customer wants to buy something? Yes!
But can you have it both ways? Only to a degree. If you lean into leaning your inventory too aggressively, you risk stockouts. If you stamp out stockouts, you create inventory bloat. You are forced to find a satisfactory balance between the two competing goals of lean inventory and high item availability.

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    Challenges: Addressing the Root Causes of Inventory Pain

    Logo for Statistical modeling and optimization

    Intermittent Demand

    Highly variable & intermittent demands make consistently accurate projections all but impossible. Countless hours are spent trying to anticipate what will come next rather than calibrating the organization’s risk tolerance and harnessing that information to determine required levels of supply.  Intermittent demand – also known as lumpy, volatile, variable or unpredictable demand – have many zero or low volume values interspersed with random spikes of demand that are often many times larger than the average.  Intermittent demand makes it difficult to accurately forecast demand and inventory requirements because there aren’t any inherent patterns.  And any patterns that may exist are overwhelmed by the random spikes in demand.  Many companies make the mistake of “chasing the forecast” insisting that sales or technicians provide better estimates of demand or turn to unreliable forecasting techniques in a quest to predict the next spike.  Many resort to forecasting inventory requirements such as Min/Max levels and Reorder Points relying primarily on subjective business knowledge and simple “rule of thumb” estimates.  The result is that millions of dollars are wasted every year because of either excess inventory costs or poor customer service due to stock-outs

    Cone Icon

    Ad Hoc Process

    The failure to establish common metrics makes it difficult to adjudicate conflicting priorities. For example, Finance may prefer to conserve cash, while Sales and Maintenance insist that they never stock out. The result is often a test of wills with forecast and inventory planners caught in the middle. This often results in decision making based on a pain avoidance response. For example, order quantities will often go up immediately following a stockout to ensure the outage never recurs. This tends to be a one-way ratchet until inventory carrying costs become an obvious drain of much needed cash. When inventory is out of balance, finger pointing often results. Operations is often stuck in the middle between sales and finance. Without a clear direction from the executive team on service goals, inventory budgets, and an insistence that sales and finance come to the table knowing that tradeoffs will have to be made, the planning team becomes disempowered and the cycle continues. An objective, quantifiable performance measure such as service level changes the discussion, putting a dollar valued on a negotiable level of service.

    Rule of Thumb ICON

    Rule of Thumb

    Safety stock levels, reorder points, lead times, and order quantity directly influence the service vs. cost relationship. Every day, the ERP system makes purchase order suggestions and manufacturing orders based on these drivers.  Ensuring that these inputs are understood and optimized will generate better returns on inventory assets.  Organizations that are able to do so will see improvements in service and reductions in inventory costs.  Unfortunately, the specific inventory policy being utilized is often unclear to many management teams.  In absence of a clearly defined and communicated policy,  planners are forced to develop their own unique approaches.  These self-developed approaches are most often a combination of simple rules of thumb and institutional knowledge. Inventory executives are simply ill equipped to shape inventory according to the changing needs and priorities of the business.  Inventory costs balloon and service performance suffers when unable to answer questions such as: “What is my current reorder point and reorder quantity policy, what level of service and inventory cost will this policy yield in the future, and how will performance and costs be influenced by specific changes to the policy.”  Rule of thumb approaches don’t answer these questions.  In fact, they ignore the critical role of of demand and supply uncertainty.  This results in excess inventory for predictable items and more frequent stock outs on less predictable items.

    ICON SKU Proliferation

    SKU Proliferation

    Whether ordering a commonly demanded, inexpensive item of an expensive intermittently demanded item, today’s customers expect high customer service levels.  This means 100% of what is ordered must be shipped from stock or within a few days.  Quoting a delivery time of more than few days may result in a cancelled order and/or violation of service level agreement costing thousands and jeopardizing customer relationships. To remain competitive, companies often must maintain a very large catalog of items all with potentially different demand patterns and volumes.  Thousands of parts potentially stocked at dozens of locations means planners don’t have the bandwidth to proactively review inventory drivers.  This results in outdated reorder points, order quantities, min/max levels, and safety stocks that trigger replenishment at the wrong time for the wrong amount ensuring poor allocation of inventory investments and low planner productivity

    Smart Inventory Optimization

    Who is Inventory Optimization for?

    Smart Inventory Optimization is for executives and business savvy planners who seek to:

    • Yield maximum returns from inventory assets.
    • Address the problem of highly variable or intermittent demand.
    • Broker the service vs. cost tradeoffs between different departments.
    • Develop a repeatable and efficient inventory planning process.
    • Empower the team to ensure operational plan is aligned with strategic plan.
    What questions can Inventory Optimization answer?
    • What is the best service level achievable with the inventory budget?
    • What service levels will yield the maximum return?
    • If lead times increased, what would it cost to maintain service?
    • If I reduce inventory, what will the impact on service be?
    • If order quantity increases, what will the impact on service and costs be?
    • What is the order quantity that balances holding and ordering costs?
    Inventory forecasting for the inventory executive

    Smart Inventory Optimization empowers you to:

    • Predict service performance and inventory costs.
    • Assess business impact of “what-if” inventory policies.
    • Align inventory policy with corporate strategy.
    • Establish an operational framework that guides the planning team.
    • Reduce inventory and improve service.

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