Inventory Optimization Best Practices

Smart Software

Inventory managers have the problem of handling tens or even hundreds of thousands of products, each with unique properties, demanding sophisticated and time-consuming calculations. The proactive management of big inventories becomes unfeasible in the absence of a systematic approach and effective analytic tools.

Without inventory optimization, businesses run the risk of overpaying and underperforming. Manufacturers, distributors, and MRO inventory managers frequently err on the side of caution when setting stocking levels to prevent expensive shortages. Establishing the ideal stock levels for manufacturers, distributors, and MRO should be a science, not an art.

Learn industry best practices on how to optimize inventory to save on costs, meet demand, and streamline your supply chain below.

Centering Act: Spare Parts Timing, Pricing, and Reliability

Centering Act: Spare Parts Timing, Pricing, and Reliability

In 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.

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How to Forecast Inventory Requirements

How to Forecast Inventory Requirements

Forecasting inventory requirements is a specialized variant of forecasting that focuses on the high end of the range of possible future demand. Traditional methods often rely on bell-shaped demand curves, but this isn’t always accurate. In this article, we delve into the complexities of this practice, especially when dealing with intermittent demand.

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Explaining What “Service Level” Means in Your Inventory Optimization Software

Explaining What “Service Level” Means in Your Inventory Optimization Software

Navigating the intricacies of stocking recommendations can often lead to questions about their accuracy and significance. A recent inquiry from one of our customers prompted an insightful discussion on the nuances of service levels and reorder points. During a team meeting, we identified unusual gaps between our Smart-suggested reorder points (ROP) at a 99% service level and the customer’s current ROP. In this post, we unravel the concept of a “99% service level” and its implications for inventory optimization, shedding light on how timing and immediate stock availability play pivotal roles in meeting customer expectations and remaining competitive in diverse industries.

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Don’t blame shortages on problematic lead times.

Don’t blame shortages on problematic lead times.

Lead time delays and supply variability are supply chain facts of life, yet inventory-carrying organizations are often caught by surprise when a supplier is late. An effective inventory planning process embraces this fact of life and develops policies that effectively account for this uncertainty. Sure, there will be times when lead time delays come out of nowhere and cause a shortage. But most often, the shortages result from:

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  • Centering Act Spare Parts Timing Pricing and ReliabilityCentering Act: Spare Parts Timing, Pricing, and Reliability
    In 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. […]
  • Balance,Concept,With,Chrome,Balls,inventory optimization softwareHow to Forecast Inventory Requirements
    Forecasting inventory requirements is a specialized variant of forecasting that focuses on the high end of the range of possible future demand. Traditional methods often rely on bell-shaped demand curves, but this isn't always accurate. In this article, we delve into the complexities of this practice, especially when dealing with intermittent demand. […]
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    Inventory Optimization for Manufacturers, Distributors, and MRO

    • Centering Act Spare Parts Timing Pricing and ReliabilityCentering Act: Spare Parts Timing, Pricing, and Reliability
      In 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 Planning5 Steps to Improve the Financial Impact of Spare Parts Planning
      In 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 Planning SoftwareBottom Line Strategies for Spare Parts Planning
      Managing 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. […]
    • professional technician engineer planning spare parts in industrial manufacturing factory,Prepare your spare parts planning for unexpected shocks
      In today's unpredictable business climate, we do have to worry about supply chain disruptions, long lead times, rising interest rates, and volatile demand. With all these challenges, it's never been more vital for organizations to accurately forecast parts usage, stocking levels, and to optimize replenishment policies such as reorder points, safety stocks, and order quantities. In this blog, we'll explore how companies can leverage innovative solutions like inventory optimization and parts forecasting software that utilize machine learning algorithms, probabilistic forecasting, and analytics to stay ahead of the curve and protect their supply chains from unexpected shocks. […]
    Problem

    Keeping inventory investments in check while maintaining high customer service levels is a constant balancing act.  Without proper controls, excess inventory grows throughout your supply chain, locking up vital working capital that constrains your company’s growth.  Every day, the ERP system makes purchase order suggestions and manufacturing orders based on planning drivers such as safety stock, reorder points, and Min/Max levels. Ensuring that these inputs are understood and continually optimized will generate substantially better returns on your inventory assets.  Unfortunately, many organizations rely on rule of thumb logic,  institutional knowledge, and “one-size-fits all” forecasting logic that assigns all items within a particular group the same service level target. These approaches yield suboptimal policies that cause inventory costs to balloon and service performance to suffer. Compounding the problem is the sheer volume of data – thousands of items stocked at multiple locations means planners don’t have the bandwidth to proactively review these inventory drivers on a regular basis.  This results in outdated reorder points, safety stocks, order quantities, and Min/Max settings that further contribute to the problem.

    Solution

    Smart Inventory Optimization (SIO™) is available on Smart’s Inventory Planning and Optimization Platform, Smart IP&O.  It delivers inventory policy decision support and the means to share, collaborate, and track the impact of your inventory planning policy. This can help realize millions in savings by improving customer service and reducing excess stock. You can forecast metrics such as service level, fill rate, holding costs, ordering costs, and stock out costs. Users can identify overstocks and understocks, adjust stocking policies when demand changes, share proposed policies with other stakeholders, collect feedback, and establish a consensus inventory plan.  And unlike traditional inventory planning systems that rely on rule of thumb approaches or require the user to arbitrarily set suboptimal service level targets, Smart Inventory Optimization prescribes the optimal service levels for you.  Users can optionally assign service level constraints to ensure the optimization engine respects business rules. SIO provides the required inventory planning parameters for a variety of replenishment policies such as Reorder Point/Order Quantity, Min/Max, Safety Stock Planning, and Order Up to levels.

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      With Smart Inventory Optimization you can:
      • Identify where you are overstocked and understocked.
      • Modify  planning parameters based on your business rules, service targets, and inventory budget.
      • Leverage the optimization logic in SIO to prescribe planning parameters and service levels for you.
      • Compare proposed policies to the benchmark.
      • Collaborate and develop a consensus inventory plan.
      • Automatically generate revised planning parameters as demand and other inputs change.

      Smart Inventory Optimization

      Reduce Excess Stock

      Optimal Inventory Levels

      Reduce excess stock
      Improve service levels
      Minimize buyer transactions
      Maximize return on assets

      Identify Stockout Risk

      Organizational Consensus

      Balance service levels
      Identify stockout risk
      Identify overstocks
      No finger-pointing

      Inventory Warehouse Connectivity

      Operational Connectivity

      Align process with strategic objectives
      Empower team to “make it so”
      Optimize as conditions change
      Pass results to ERP

      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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