Given that inventory is often a distributors’ largest and most costly asset, most firms strive to reduce their inventory carrying cost and increase their margins — activities that can have an even greater effect on the bottom line than increased sales.
Using these tactics to significantly increase profitability sounds simple enough and there are plenty of demand planning systems out there to consider, but the key is getting the right information into the system from the start. Which means you really need to look at the situation from the perspective of managing information rather than inventory. After all, a forecasting tool is only as good as the accuracy of its historical data.
Lanham Associates’ Advanced Forecasting & Procurement (AFP) product provides several ways to improve the accuracy of historical data, including filtering usage, smoothing usage, redirecting usage, cloning, and collaborative input. By assigning a best-fit formula to each item in each warehouse, AFP provides a forecast that can extend up to 52 periods.
The AFP product also factors in the impact of long lead-times, so you can be sure you have items you need, and offers multiple formulas designed to identify seasonal trends to help provide more accurate forecasts.
Since it is built directly inside Microsoft Dynamics NAV, the software provides users with all the data they need to make inventory-related decisions right inside their business system. Through the use of dynamic controls it can also react to changes related to inventory, demand, or to the demand plan itself. These dynamic capabilities allow the system to automatically make adjustments if it detects an over-consumption of the forecast. With this ability to quickly react to large, unexpected sales by making an automatic forecast adjustment, the system can minimize the chance of a future stock-out by increasing the suggested order quantity.
Hub & Spoke Capabilities
Companies with multiple warehouses have special considerations. They may choose to operate in a hub and spoke environment where they purchase into one hub warehouse and move inventory down to spokes based on their individual forecast. While choreographing all of this sounds like a gargantuan task, the AFP product is designed to offer users the flexibility to setup a replenishment path down to the item level, which means any warehouse can function as a hub for a vendor or product line.
Surplus & Excess Analysis
An “Inventory Balancing Suggestion” feature in the AFP product allows you to re-deploy inventory from warehouses with a surplus to warehouses with a need. The system analyzes every item in every warehouse daily and divides the On-Hand quantity of each item into Good, Surplus, and Excess inventory categories and extends these quantities to dollars. This means you’ll be able to see exactly where your inventory dollars are invested.
When it comes to formulas for success in demand planning and replenishment, these are just a few examples of what Lanham’s AFP software can do. If you need a little relief in your inventory management, and would like to hear more, join us on Oct 1, 2015 for a webinar titled: “Are your inventory levels too high, while fill rates are too low?” We’ll be covering the importance of historical usage and many other key components of demand planning and replenishment.
CEO, Lanham Associates
Partner, Absolute Value, LLC
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