The market success of production enterprises is inseparably connected with the possibility of maintaining contracted levels of customer service (Service Level) while maintaining care for the level of costs and cash flow. Thanks to this, companies can generate profits and have access to financial resources enabling further development.
Traditional strategies used by companies in the area of building inventory in distribution warehouses based on a simple calculation of sales coverage days, which have been successful until recently, are now insufficient. The high volatility of market demand and elements affecting the supply chain cause, on the one hand, the occurrence of the phenomena of the lack of availability of certain product groups and, on the other, the overstock situation of other groups. The lack of availability of the product results in the lack of maintaining the required levels of customer service, penalties, loss of sales and margin.
Inadequate inventory structure affects increased production costs, working capital and additional logistics costs as well as cash flow.
A solution that effectively mitigates this type of undesirable phenomenon is the use of advanced methods of forecasting demand that allows you to identify changes in customer preferences in the form of a trend, seasonality of their behavior and the impact of marketing activities and price promotions. Knowledge about the variability of demand over time allows you to build realistic sales plans and act proactively, preparing in advance for the situation of both the expected increase in demand over certain product groups, as well as its decreases in other product groups, and adjust the inventory structure accordingly.
The second element that allows increasing the efficiency in inventory management is the optimization of the safety stock. Information on demand and its volatility is a very important, but not the sufficient to allow maintaining an optimal level of safety stock. Elements that have a big influence on decisions regarding what, when and in what quantity to produce are related both to the required level of customer service as well as production and logistic constraints. The most important of them include information on the time of work orders, production volume constraints, ie minimum batches and their multiples, calendars, etc. Understanding the impact of these factors on the process of building a safety stock allows to maintain an appropriate level of them.
The use of advanced forecasting methods and a stock analysis mechanism based on the required levels of customer service, logistic and production constraints along with the sales volume implemented in fully automated and scalable process allows generating optimal recommendations regarding replenishment of the distribution center.
It is important that the managers responsible for the level of inventories and sales plans in the company can easily use the recommendations generated by the system and transfer them into ready-made guidelines for production planners. Thanks to this, the qualitative change in the form of calculated quantities for inventories does not disturb the company’s standard processes performed, which significantly accelerates the time for productive implementation of the solution and obtaining business benefits.
Estimated calculations of the potential business benefits resulting from the application of the discussed solution show that customers using this approach and tools can reduce the excess inventory in the range of 5% -15% and increase the sales volume by 1% -5%, depending on the specifics.