Volatile markets, material shortages, and COVID-19 will continue to disrupt supply chains in 2022. What steps can you take to optimize your inventory planning?
Dark clouds are still circling above the logistics and supply chain industry. Unpredictable demand, volatile global markets, and the rise in inflation across the US will affect how businesses approach their inventory planning in 2022. This year, you must either be a step ahead of the game or be prepared to potentially lose customers to your competitors.
Focus on inventory inputs that will help you achieve:
- An accurate demand plan and
- Hold the right amount of safety stock to mitigate demand risk.
While businesses will still face many supply chain challenges in the year to come, the horizon looks a bit brighter. Russ Graff, VP of channel management at Netstock, is optimistic about the future of the supply chain industry.
There are fantastic inventory software tools available. Colleagues are graduating smart young people in the supply chain discipline, and businesses of all sizes appreciate the importance of supply chain management in their operations. All of this means we are approaching a golden era for supply chain professionals and inventory-based businesses.
Stay ahead of your competitors by using the lessons learned from the last two years to help guide your inventory planning.
7 steps to help make smarter inventory decisions
- Be data-driven
- Ensure your inventory tool is fit for purpose
- Understand your business maturity
- Know the stock that drives profit
- Improve forecast accuracy
- Measure your suppliers
- Provide continuous learning for your team
#1: Be data-driven
Make strategic decisions based on accurate data!
As the saying goes, ‘garbage in, garbage out’. Being diligent and taking time to input accurate data into your ERP will reward you with actionable insights to help you make the right decisions to manage your inventory.
If anything, the last two years have shown us that the more accurately you can plan for demand, the better you can service your customers. That said, accurate data alone is not helpful if you cannot analyze and interpret the data to make the right decisions.
What I like most about the Netstock app is the visibility of data. Everything you need is in the system to make intelligent decisions. For example, we have a supplier with a minimum order value, and they offer an incentive of around 15% if we order over that minimum order value. Being an international supplier with typically longer lead times, it makes financial sense to place larger orders to get that extra discount. However, you want to get the best balance of products, which the Netstock data helps us determine – Spencer Keast, Country Manager, Prospectors
Access to accurate data will allow you to foresee any problematic areas.
By working off an inventory dashboard, you can manage the top priority areas that need attention, ensuring you don’t have excess stock or experience stock-outs. With this granular focus, you can closely monitor your fill rate to continue to offer excellent service to your customers.
Firstly, we get a clear picture of the state of our inventory. I open up the [Netstock] App in the morning, and it’s all there – my headline data on a neat dashboard that tells me what needs to be actioned first. – Luke Timney, Supply Chain Manager, Kapitex.
#2: Ensure your inventory tool is fit for purpose
Can you answer the following questions about your current planning tool?
Are you able to:
- Forecast up to 24 months?
- Measure your supplier’s performance? Review all stock and its value supplied by a supplier to each location, and the safety stock value?
If you are coming up short on these questions, you probably need to reconsider the tools you are using to manage your inventory. If you are managing your inventory on one master spreadsheet, this can add unnecessary risk to your planning. While spreadsheets provide value, they also have limitations, such as:
- Not accurate: prone to human error that can often be costly. For example, you can’t accurately place orders with incorrect stock balances.
- Unable to help scale your business: As you grow your inventory catalog, you can’t track or plan for each SKU individually without creating a complex spreadsheet.
- Not dynamic: unable to synchronize key data inputs simultaneously to provide a detailed current view of your inventory holding.
- Not secure: with the increase of cyberattacks, you put your business and your customer’s information at risk.
We have around 3000 raw materials, which make up approximately 550 products. Managing this large number of SKUs on a spreadsheet was complicated, would often break, and was extremely time-intensive. – Bethany Claps, Materials Manager at AAI.
If you consider investing in an inventory management solution, first identify what outcomes the software must provide your business and which features the software should have to help meet the business goals.
#3: Understand your business maturity
Be realistic about the current status of your business and the resources you need to grow your business.
Understanding the inventory maturity journey ensures inventory-based businesses are where they need to be as they continue to grow. – Russ Graff, VP of Channel Management, Netstock.
The inventory maturity curve provides a point of reference for businesses to assess and understand what tools and resources they need to reach future goals. Quite simply, it’s a roadmap showing where you are now and what you need to do to reach your desired destination.
Knowing where your business sits on this curve will guide you with:
- Allocating the appropriate working capital when planning your inventory
- What technology you will need to advance your business
- The skills required of your team
Keeping your team updated on the steps and resources needed to grow the business based on the inventory maturity curve will encourage greater team alignment.
#4: Know the stock that drives profit
When you manage 1000’s SKUs, do you know the priority stock items that will contribute the most to your bottom line?
Classify your inventory so you can immediately identify your stocked, non-stocked and obsolete items. Holding inventory that is not turning and collecting dust in your warehouse will continue to cost your business money.
Using an automated classification matrix will save you time in managing key items more closely. Based on the 80/20 rule, you can allocate the right working capital to the items that drive your most sales by understanding each item’s sales and velocity.
Once you classify your inventory, you have the correct information to:
- Place optimal orders
- Know which items require more or less safety stock
- Improve the lead times with suppliers for your key items
#5: Improve forecast accuracy
An accurate forecast will help predict future sales with optimal inventory orders, track sales, identify changes in demand and ensure you are not over-stocked or incur stock-outs. An automated forecasting engine is your best friend to achieve this quickly!
To manage both supply and demand risk, you need to be:
Predictive – Proactive – Reactive
A sophisticated forecasting engine: will allow you to adjust your forecast to react quickly and efficiently to changes in the market. You can plot future sales you want to achieve and the inventory needed to support the sales. You can then adjust your forecast to model specific ‘what if’ scenarios to help reduce risk. This is smart inventory management!
Automated sales forecasts take into account:
- Seasonality and trends
- Once off sales spikes
- Intermittent demand
- New stock items
Plan for various scenarios: Identify the most likely scenarios for your business based on the key repetitive challenges you have faced over the last three years. By flexing inputs in your forecasts, you can measure the impact of investing more or less capital into a specific product range or the sales impact of opening a new warehouse.
Forecasts require human input: Internally, connect with your sales, marketing and operations teams. Externally, connect with your suppliers and customers. Information such as market intelligence, future promotional campaigns and supplier risks contribute towards a more accurate forecast.
Nestock helps manage our forecasts for each of our markets and consolidates our global demand, providing us with recommended orders across our style range. What used to take weeks to refresh and review our data now takes a fraction of the time and allows us to make more timely decisions. We have more time on our hands to scale our business and focus on other challenges. – Dan Watterson, Global Head of Operations at Zhik.
#6: Measure your suppliers and understand their limitations.
Supply is unpredictable, adding immense pressure when accurately planning your inventory. However, you can control your supply more efficiently and reduce supply risk by learning everything you can about your suppliers!
Being able to extract data about your suppliers, you can monitor and measure your supplier’s performance.
A reminder, your customers are also measuring your performance!
The key objective is to reduce long lead times to prevent you from over-ordering and incurring excess stock.
- Regularly review how your suppliers perform: who delivers on time and in full? Pay special attention to those who supply your key items.
- Know the value of your open purchase orders for each supplier.
- Review how much you spend over a 12-24 month period with each supplier.
- Share your forecast with your suppliers: give your suppliers insights into your future requirements, so they can also plan more efficiently themselves.
#7: Provide continuous learning for your team
Investing in the best inventory management technology alone will not optimize your supply chain without your team’s expertise. Investing in learning initiatives for the people managing your inventory will help improve problem-solving and innovate your inventory planning strategies.
Supply chain professionals, inventory planners, and future talent we bring into this industry need to be curious! They also need to be willing to learn as remaining current in this volatile environment is key to innovation. – Russ Graff
- Understand the level of expertise within your team.
- Identify learning gaps and select the appropriate learning path for each team member.
- When you invest in inventory management software, ensure the onboarding process is rigorous and offers continuous learning support for all users.
- Build in continuous learning as a strategic business objective
Key take outs:
- Managing your inventory is a collaborative process
- Keep communicating with your team
- Review your inventory key performance indicators
- Stay agile