The market success of distribution companies is inseparably connected with the possibility of providing customers with the wanted products in the shortest possible time at a competitive price. 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 replenishing distribution centers, based on a simple calculation of sales coverage days, which have been successful until recently, now prove to be 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 in other groups. The lack of availability of the product results in the loss of sales, customers and margin.
Excessive stock causes the increased costs of working capital and additional logistic costs, ie. insurance, warehouse operations, additional transport costs, etc.
A solution that effectively mitigates this type of undesirable phenomenon is the use of advanced methods of demand forecasting that allows you to identify changes in customer preferences in the form of a trend, seasonality of their customer behavior and the impact of marketing activities and price promotions. Knowledge about the variability of demand over time allows us to act proactively and prepare in advance for the situation of both the expected increase in demand over time for certain product groups, as well as the decrease for other product groups, and adjust the inventory structure accordingly.
The second element that allows you to increase the efficiency in inventory management is the optimization of replenishment. Information on demand and its volatility is a very important, but not the sufficient to maintain optimal inventory levels. Elements that have a big impact on decisions regarding what, when and how many to order are related to logistical constraints. The most important of them include information on delivery times of goods and the level of suppliers’ reliability measured by timely deliveries and their completeness, limitations on the volume of orders, ie logistic minima and maxima, supplier work calendars and your own distribution centers, etc. Understanding the impact of these factors on the ordering process allows on the one hand, properly shape the process of renewing purchases, and on the other hand, maintain the appropriate level of safety stock.
The use of advanced forecasting methods and inventory analysis mechanism based on logistic constraints and the sales volume integrated in fully automated and scalable proces, allows the generation of optimal recommendations regarding replenishment of the distribution center.
It is also important that the managers responsible for ordering process in the company can easily convert the recommendations generated by the system into a ready-to-ship-to-supplier purchase orders in the ERP system used. As a result, the qualitative change in the form of calculated volumes for purchase orders does not change the company’s standard process, which significantly speeds up the time for productive implementation of the solution and for 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% -25% and increase the sales volume by 1% -5%, depending on the specifics.