(Newswire.net — June 18, 2021) —
Over the past year, businesses have made major shifts in how they operate, plan, and perform. Digital inventory planning should have been at the forefront of businesses since their inception. However, it was not. Even as we entered into a pandemic where social distancing was imperative, many businesses did not make the necessary digital moves. For many organizations, it requires a culture change and that does not happen quickly. While moving towards Inventory Optimization may be challenging, it is a necessity if you want your business to not only survive but thrive.
What You Need to Know About Inventory Optimization
As you move to a more digital way of maximizing your business, there are some things you should know about inventory optimization.
Demand has become more complex and that has brought about challenges. Demand has become unpredictable and intermittent. This makes forecasting needs more challenging than ever. There are many reasons why forecasting has become difficult. The first of which is the traditional supply chain was not built to handle high variability. There was a loss of balance between the level of service and inventory. There was a loss of trust in the process. When a planner no longer trusts the forecast, they begin to increase the stock of safety items. This causes unnecessary costs, which often cannot be absorbed and waste.
When the environment changes and becomes more complex, you cannot use the same methods for forecasting as you have in the past. They simply will not work. When the environment changes, everything else must change with it. Enter a more service-driven inventory optimization. This has been proven to work in the digital age. This type of optimization focuses on marketing, sales, and consumers. This style creates service classes that marketing and sales can understand. Target service levels are created for every service class, with corresponding SKU locations. This creates an aggregated goal allowing you to keep the least amount of stock on hand, which gives your investment as minimal as possible.
Probability forecasting is key to optimize inventory with a service-driven style. You can longer attempt to approach your business with an end goal of forecasting. It is no longer going to work. The environment has moved beyond that and if you do not move with it, you will be left behind. Probability forecasting gives you a range of end results. Each result has its own probability of occurring. This style allows you to prepare for uncertainty. We have all had our share of uncertainty this past year. When you account for it, you are better able to manage your risk. You can even account for demand and market volatility. This is where you see the biggest hits to your levels of service. In addition, you are reducing your costs, removing the concern of too much or too little inventory, and receding your capacity problems. You may not be able to predict what happens next, but you can be prepared for just about anything and understand how best to pivot when the unexpected occurs.