Sometimes the terms “inventory management” and “inventory optimization”, are used interchangeably. However, they are two different concepts.
They can be confused and an organization may focus on one more than the other. Distributors must be able to achieve and maintain both, as they offer different outcomes.
Optimized inventory means you have the right SKUs and the correct quantities in the appropriate warehouses. Proper inventory control allows for consistent order fulfillment and increases on-time-in-full (OTIF)
Technology can help you achieve both.
To optimize inventory, organizations are using increasingly sophisticated models. It’s no longer enough just to calculate forecasts using simple weighted mean values and set safety stocks or reorder points only once a year. Dan Koch is the AD VP of Information Technology. Distributors will need to use advanced analytics models in order to respond to customer expectations and rapidly changing supply chain events. In the next five-years, distributors will be more reliant on advanced analytics to optimize inventory.
What do these terms, which are similar but not the same, mean? And why is it so important?
Inventory control
Inventory control refers to the procedures and processes used to maintain inventory in a warehouse or distribution center. The goal of inventory management is to achieve 100% accuracy in inventory. These processes touch every part of the DC or warehouse.
Receiving is the first step in ensuring that you have complete control of your inventory. Before goods are placed in storage, they must be unloaded and inspected for quality. Although the process may vary, quality control should be performed during the receiving process. Distributors should conduct quality checks on inbound goods for several reasons. These include verifying that the correct item(s), in the ordered quantities, is intact and undamaged. Your ERPIt is essential to have a way to efficiently capture quality data for vendors. Distributors can lose time and money by not accurately receiving data.
After goods are received, they are stored in containers or other containers for future pick-up. There is more chance of errors if the process is more manual. It is crucial to ensure that the correct item in the correct quantity is placed in the bin or location. This is both physically and systematically. Cycle counting is performed while goods are being stored in the warehouse to ensure inventory accuracy and compliance with Sarbanes Oxley rules. Consolidations, replenishments, picking and other activities can also impact inventory accuracy. Inventory accuracy can be improved by using real-time cycle counts in your ERP. Increased sales can be achieved by improving inventory accuracy. Learn how Reynolds Catering This case study linked to efficiency and accuracy increases.
It is important to properly document, teach and preserve the procedures in order to ensure that proper inventory control is maintained throughout all of these processes. Consistent application of processes will only lead to positive results.
Inventory optimization
Inventory optimization is the art of keeping the right amount inventory in the right places.
Distributor’s inventory is their single most important asset. Unoptimized inventory can result in unfavorable situations. These can include backorders, stockouts, and poor customer satisfaction. Many buyers are aware that stockouts can have negative consequences and they tend to buy more. Too muchOverstocking can lead to inventory.
Overstocks can eat up valuable capital and cause product write-downs. Overstocks can also make your DC less efficient, increasing the risk of being stuck in dead inventory, and making it less efficient overall. You can use the space that you free up through inventory optimization to improve your product offerings.
Leanne Moll from Deloitte, Infor manufacturing lead, cautioned that it is important to not treat inventory optimization as a once-in-a-lifetime event. You can leverage great technology to create a repeatable procedure that maintains the efficiency you’ve gained. You will create recurring value.
Proper inventory optimization is crucial as your network becomes more complex. The challenge lies in having the right inventory and quantities in your network as well as having them in the proper locations. Inconsistent deliveries and longer delivery times can result from inefficient inventory. These problems can all be solved by properly positioning inventory in your network. The right ERP will optimize your inventory by automatically adjusting inventory levels according to the buyer and vendor habits.
Companies that focus on customer service excellence optimize inventory and service levels, while reducing holding costs. The use of the Demand plannerYour ERP will optimize inventory by allowing you to forecast more accurately. Demand planner automatically forecasts based on over 20 statistical app-based methods. Demand planner uses advanced demand pattern-sensing algorithms, data anomalies, seasonality, and exceptional events. It allows you to visualize the problems you are trying to solve, increasing your forecast accuracy. You will be able to respond quicker to supply chain issues, reduce lost sales due to product nonavailability, and reduce overall inventory levels.
For distributors, it is essential to keep inventory under control and optimize inventory levels. A consistent process and procedure, combined with the right technology, will make your operation more profitable.
Will Quinn serves as director of industry solutions and strategy. For.
