10 Tips: Matching Inventory To Demand
Demand is a constantly changing variable in any supply chain. Each time the demand tides change, retailers, wholesalers, distributors, and manufacturers must align inventory levels to meet customer expectations. Here are tips for doing it successfully.
1. Leverage advanced demand forecasting. Strong processes, advanced artificial intelligence, what-if analysis and other sophisticated software systems can help identify the effects of seasonality, baseline demand changes, and weather-related impacts. These surpass the capabilities of most basic statistical forecasting tools, which require patterns from the past to remain consistent in the future and are not as effective in today’s uncertain environment.
2. Implement forecast accuracy metrics. While the first instinct might be to buy new demand-planning software, many companies can improve forecast accuracy by implementing stronger metrics. In forecasting, it is especially true that you cannot improve what you do not measure. Consider getting more specific with your metrics.
3. Focus on process. Many stock-keeping units (SKUs) are highly predictable using the science of common statistical methods. Conversely, promotions highly influence other SKUs, requiring the art of forecasting. Dedicating valuable sales resources to tweaking predictable items is not only non-value added, but it also often worsens forecasting accuracy.
4. Use sales and operations planning. Create a robust sales and operations planning (S&OP) process that incorporates demand planning, inventory optimization, supply planning, inventory positioning, product flow, and omnichannel order orchestration.
5. Reduce variability and lead time. Longer lead times impact when you receive your inventory. In times of shifting demand, faster cycle times throughout your supply chain are critical. Optimize your distribution center placement to be as close to your customers as possible. Also, review supply and demand exceptions to identify solutions before they impact service.
6. Position inventory appropriately. Advanced inventory positioning strategies, such as forward logistics processing centers, position inventory appropriately to manage each SKU’s demand variability. These centers can function in a hub-and-spoke model to fill SKU gaps where demand is harder to forecast or where inventory is in high demand and speed is more important.
7. Increase inventory and demand visibility. You can’t adjust your inventory to shifts in demand without visibility into on-hand and in-process inventory. By leveraging point-of-sale data into your inventory management systems, combined with real-time warehouse management applications, you can keep a pulse on inventory.
8. Improve supplier reliability. Although demand variability is a major cause of service failures or inventory challenges, the pandemic taught us that supplier performance problems impact supply chain performance. Working with suppliers to understand their capabilities instead of having generic lead times is critical.
9. Measure supplier performance. Holding suppliers accountable to deliver what is requested when it is requested and in the quantity requested is critical. The temptation to allow suppliers to ship what they want when they want can inflate inventory levels and prevent distribution centers from handling critical deliveries.
10. Have an end-to-end perspective. A supply chain is only as strong as its weakest link. While fixing issues at various points in a supply chain drives incremental improvement, transformational changes can occur only by taking a holistic end-to-end perspective. While fixing demand forecasts is always beneficial, poor supply performance muddles demand signals to identify real demand vs. “just-in-case” demand. Similarly, filling warehouses with excess inventory creates congestion and operational and cash-flow inefficiencies, and can hurt service in its own right.
SOURCE: Paul Baris, Vice President, Consulting, enVista