How inventory optimization keeps the inventory balance at the right level
For trading companies, the ideal scenario is to always have the right products in the right quantities on the warehouse shelves. Few achieve this, and the reality is that many companies struggle to find the right balance in inventory management and optimization. Sometimes, there is a surplus of items that are rarely demanded. Other times, the shelves are empty when demand suddenly exceeds supply.
Why optimize your inventory?
When popular items run out of stock, the company loses sales, and there is a risk that customers become dissatisfied due to perceived low service levels. Internally, deficiencies in inventory management also create “time thieves.” Buyers and inventory planners have to spend a lot of time identifying the root of the problem and then addressing it. Overstock also means unwanted capital tie-up and increased risk of write-offs and reduced profitability.
One industry that can have extra challenges with inventory optimization is e-commerce companies. These companies often have large assortments with varying demand patterns and, in recent years, have faced new challenges in the form of rapid and significant changes in customer demand.
Companies that try to counteract this with large safety stocks find it difficult to achieve profitability even if growth is good. Then there are also e-commerce companies that have suffered downturns where overly large inventory values contribute to profitability problems.
IMI’s solution for inventory optimization provides automated efficiency
How do you create the optimal balance so that the right goods are available in the right quantities on the warehouse shelves? Many companies, where decisions about purchasing and replenishment are based on forecasts from sales departments and their estimates of expected sales levels, have discovered that it is difficult. Combined with time-consuming manual ordering routines, the result is often excessively large inventories and service levels that do not meet customer expectations.
Automatically calculated demand forecasts, based on statistical analyses and updating demand patterns down to the item level, are a better tool. This minimizes the risk of selling out of popular items and overfilled warehouse shelves with less demanded goods.
IMI’s solution for inventory optimization also includes many other automatic functions that ensure inventory availability. One example is that the system generates alert levels when an item starts to run out. This helps buyers stay ahead with new orders, which can also be generated automatically, and achieve the equation of ordering at the right time and in the right quantity. The business value includes maintaining customer service levels, no disruptions in sales, and the lowest possible capital tie-up.
Safety stock adapted to volatile demand
Many of IMI’s customers have sharpened their inventory optimization by gradually taking advantage of all the functions that the system offers. Inventory optimization is about having the right goods on the shelf and in the right quantities so that a company can deliver quickly without tying up unnecessary amounts of money in overstock.
The ability to sort, group, and break down key figures by, for example, A-items, product categories, brands, and suppliers is a central part. Another example is the ability to have full control over the service level for the entire assortment both in the present and in the past, and to see how good the service is for a selected part of the assortment.
For companies where a reduced inventory is a prioritized goal, IMI’s solution quickly provides information on how much the inventory can be reduced over a couple of years if inventory management is based on current parameters. The continuous and dynamic adjustment of safety stock based on factors such as demand patterns, suppliers’ lead times, and established service goals is also a reassurance for companies struggling with large and sudden fluctuations in demand.
