Inventory Optimization
Supply chain management has undergone large-scale transformation in the past few months. COVID-19 has taken the world by surprise. Could COVID-19 be the event that finally forces many companies, and entire industries, to rethink and transform their global supply chain model? The answer is clearly Yes.
As the situation develops, can you ensure your supply chain remains connected, robust and sustainable? Where there are aspects of your business that are under pressure for essential materials and components, are there alternative sources that you can leverage? Are there substitutions that you can make to bridge any gaps?
With enormous disruptions in today’s supply and demand chains, it’s essential to have accurate, connected inventory and order data to drive business decisions.
Covid-19 is currently causing an unprecedented crisis worldwide. The uncertainty within supply chains is huge; factories are forced to temporarily close their doors, companies experience significant problems with supply and sales forecasting has become totally unpredictable. Supermarkets are noticing a huge increase in sales, as a result of consumer behavior and the closure of bars and restaurants. Simultaneously DIY shops and garden centers see an increase in demand as people are forced to stay home and start projects in and around the house. However, other companies see big drops in sales, or to the point sales stops completely. To get through this crisis in the best possible way, we must act quickly.
For many companies, supply chain performance affects 100 percent of company’s revenue but only part of the income statement. Supply chain problems have significant impact across the rest of the business, as do supply chain successes. If you could improve the health and visibility of your supply chain and your business, wouldn’t you?
What is the supply chain planning process?
Supply chain planning is the process of planning a product from raw material to the consumer. It includes supply planning, production planning, demand planning, and sales and operations planning.
What is Inventory optimisation?
Inventory optimisation is the science of lowering capital investment in inventory, or stocked items, while reaching target service level goals over a large assortment of stock-keeping units (SKUs). Manageable control of demand and supply volatility must also be at the core of any successful inventory optimization plan.
For distributors and manufacturers that buy and/or make items to stock, inventory optimization represents the easiest proven path to significant cost savings and increased revenue.
Every Dollar that can be saved by reducing stock levels has a direct impact on a company’s capital employed. The relative size of the inventory and turnover rate affects the amount of capital tied up and thus the cash flow. Releasing capital tied up in inventory for more efficient use of assets signficantly improves return on capital employed (ROCE). Inventory costs such as financing, taxes, insurance and write offs are all directly affected by the inventory levels.
Inventory costs represent a sizeable component out of total logistics costs. Up to about one third of working capital costs are also arising from inventories. Inventory optimization has the potential to increase profitability through multiple cost reductions tangled with inventory such as holding costs, handling costs, back order costs… Increase Profitability.
Properly sized inventory levels enable companies to maintain or increase their service levels with their customers while tied up capital is minimized. Properly developed and managed inventory levels result in more orders being won and higher customer satisfaction.
By calculating the optimal safety stock, reorder points and order quantities based on the required level of service, the inventory levels will decrease alongside with the capital tied up, while assuring the desired target service level is secured. Most companies have the potential to reduce their inventory levels by 30%, some 50%, some even more.
How to achieve connected supply chain planning
To succeed in a growing global market, you must adapt effectively to the digital revolution and seek out practical ways to connect your supply chain planning from start to finish.
At Titan Solutions
At Titan Solutions, we take the guesswork out of determining the minimal amount of inventory required, enabling business to
• achieve defined service levels
• eliminate inventory imbalances, and
• quantify risk.
We do this utilizing real-world simulations of a company’s supply chain environment. We simulate the supply chain for any given item in any given location. We run the simulation for a defined period. During the simulation, daily inventory goes up due to receipts and goes down due to demand or any other valid consumption. We then iterate the simulation to find the optimal answer to this question: What’s the minimum inventory level that has the highest probability of meeting the required service level?
Our simulations build models of possible results by substituting a range of values, in other words a probability distribution, for any supply chain factor that has inherent uncertainty. It then calculates results over and over, each time using a different set of random values from the probability functions. Depending upon the number of uncertainties and the ranges specified for them, a simulation could involve thousands or tens of thousands of recalculations before it is complete. Simulation produces distributions of possible correct outcome values.