News

Special for Just in Time - June 2003

Most distributors agree that good customer service and effective inventory management practices go hand-in-hand. Unless you have in stock the product the end-user wants when he wants it, your customer service level will suffer and you will lose money.

Definitions of good inventory management can vary greatly from one distributor to the next. Some distributors adhere to the concepts of thinkers like Gordon Graham. Graham, a pioneer and an important force in awakening distributors to the importance of inventory management, advocated easy-to-understand forecasting methods that helped distributors cope with the changing tides of supply and demand. His concepts were also easy to integrate into distribution-centric software solutions.

Recent research in inventory management has led to more advanced concepts and formulas. These new concepts remain simple and compelling. Rather than add complexity, they add depth and flexibility to the inventory management process.

Advanced Concepts

The concepts of advanced inventory management principles improve forecasting accuracy through two basic steps: item demand identification and advanced forecasting formulas. The improvements to forecasting accuracy build on the fundamental knowledge that there are four basic types of item demand categories: level, trend, seasonal, and erratic. Functionality built into distribution software solutions examines a particular item's history and categorizes it appropriately. Then, other functionality tests the item's history against formulas tailored for its demand, and finds the best fit. That formula is then used for forecasting.

This functionality is a significant leap forward in how software solutions handle forecasts, particularly when reacting to trends and seasonality. Much of this functionality was not available in the past, because antiquated legacy technology lacked the capacity to store the necessary history or process the data. Now, with newer technology, it is possible to run these algorithms in real time, and analyze the results without the difficulties that are encountered with most legacy systems. Users realize significant timesavings, because there isn't a need to manually analyze each item's demand.

Years ago, many end-users adopted the Just-in-Time inventory management philosophy. Unfortunately, most wholesalers now operate on Just-in-Case principles. To help reduce the amount of money typical distributors waste on excess safety stock, the solution employs user-defined service level goals to automatically determine the amount of safety stock needed for individual or groups of items.

The Results

These enhanced advanced inventory management principles improve customer service in a number of ways. Your buyers can focus on the items that need the most attention, because items will be grouped by criticality. Plus, you will always know how well you are servicing your customers, because you can set goals for target service levels for items, and the system determines the appropriate safety stock for those target service levels. Best of all, improved forecasting translates into not only better customer service levels, but also means that you will be less likely to over-buy inventory, helping you save money and retain purchasing power.

Most importantly, however, you gain a better understanding of your inventories. Your enterprise software solution gives you graphical views of historic demand vs. forecast and gives you a glance of how well the forecast fits - all of which is made possible by a graphical user interface. And, "what if analysis" allows you to evaluate the dollar effect of different service level objectives on groups of items.

You should expect your enterprise software solution and its inventory management functionality to help enhance your forecasting accuracy, improve customer service, save valuable time and money, and increase your service levels.

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