The Truth about Inventory Optimization: Show Me the Money

You might be asking why do I need Inventory Optimization? – To increase your profits and cut your costs. A truly optimized inventory results in lower inventory and lower lead times by creating a balancing act of acquisitions cost, carrying cost, vendor minimums, price breaks, gross margin, sales dollars and service goals. Retailers need to review, measure and act on their inventory every day.

Inventory Optimization doesn’t mean Out-of-Stock or Over-Stock

Just last week, a retailer wanted to know how his optimized inventory resulted in overstock and out-of-stock at the same time. We hear this question all the time and the answer is simple. This retailer doesn’t have a true demand driven optimized inventory because they don’t own an inventory optimization solution or the solution they are using doesn’t really optimizing inventory, or they don’t use the software they own preferring to rely on holding their thumb up to feel which way the wind is blowing among other old-school tricks.

Inventory Optimization needs accurate Demand Forecasting

Many times if we optimize one thing it is to the detriment of something else. However, for successful inventory optimization you need a demand forecasting and inventory replenishment solution that can optimize your inventory across the supply chain. This means lead time forecasting; DC to DC transfers, DC days processing, internal transfers, the entire pipeline from Purchase Order to consumer purchase must be considered in the review process. Inventory Optimization should increase your profits by calculating the most economical way for you to flow inventory (EOQ) and minimize costs.

Is Optimization in your Inventory Replenishment Solution?

Investment Optimization is a strategic part of the buying role that many companies don’t realize today. The truth: Buying that is based on accurate demand forecasting, accurate lead time forecasting and effective inventory optimization processes delivers significantly higher gross margins, better GMROI, and balanced inventory levels.

The Buying function and maintaining inventory is often viewed as a cost center and companies struggle with these 4 basic questions:

When do I buy? How much lead time
How frequently should I buy? Weekly Monthly
What quantity should I buy? Minimum and multiples
When I buy, how can I balance inventory levels?

Inventory Optimization increases your profits, calculating the most economical way for you to flow inventory (EOQ) and minimize costs. Inventory Optimization, in conjunction with a strong Order management module provides you an inventory policy that balances your service level targets and inventory levels while minimizing inventory carry. If you have implemented an inventory optimization solution, you can answer those questions confidently.

Want more on Inventory Optimization, Read a Top Download of 2012: Carrying Cost: Clean up your Inventory Optimization Fuzzy Math

Inventory Optimization Buying decisions are Organizational

Inventory optimization requires input from other groups in your organization. It also requires a company to look at people, processes and tools and make the right investments to realize those bottom line results. Inventory Optimization based buying decisions are based upon sound financial judgment utilizing the company’s cost of money, vendor brackets, logistics costs along with space and cash availability. Inventory Optimization balances product costs, and acquisition costs against inventory holding costs.

Additionally, you need your buying decisions integrated into a demand forecasting application that integrates promotional planning into regular replenishment, optimizing service and inventory while taking into account other factors such as available shelf-life. Buying decisions can be executed in Excel with a talented macro programmer but your company will never realize true inventory optimization benefits without integrating those factors with normal replenishment ordering.

Inventory Optimization generates sound inventory buying decisions, minimizing your costs, maximizing margin dollars, GMROI, along with delivering high service levels of service to your customers. Click here to read more about our inventory optimization solution.

Is Optimization in your Inventory Replenishment Solution?

The most in-depth inventory optimization systems balance demand forecasting, lead-time forecasting, order optimization, location-SKU service level strategy, replenishment, planned promotion buying and investment buying, all within a multi-echelon network that enables buyers to generate the optimal profit for their inventory investment.

Together these capabilities reduce cost, increase sales, improve margins and raise customer satisfaction to give your company a competitive edge.

Are your ready to ‘Tighten the Links in Your Supply Chain?™’

Want some help getting started contact Data Profits for a free consultation. You can also request a demo and see how things can start to improve in your supply chain with our 30 day install and 90 day ROI.

About
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Stuart D

Stuart Dunkin is a strategic visionary who leads by calling on his broad range of experience as a former retail executive as well as a consultant for top retailers and for the E3/JDA software company. He founded Data Profits to solve a real-world problem plaguing retailers today – the disjointed relationship between supply chain data, people and business goals. He has experienced first-hand the challenges and frustrations that occur when decisions are made based on wrong data, which often leads to the wrong actions being taken with crippling results like overstock, out-of-stock, and increased working capital.
Stuart graduated from Auburn University, with bachelor of science in business administration.