Inventory Management and Demand Planning: Overview
If you want to gain a competitive advantage, efficient inventory management and demand planning is absolutely key.
The cost of holding stock can very quickly eat into profits.
At Bisham, our Logistics Consultants have vast experience of purchasing, demand management and inventory level optimisation. Our knowledge was gained therefore the hard way through years of experience in senior management positions in industry. We have a huge range of experience across retail and manufacturing sectors. Consequently, Bisham Consulting are able to apply proven methods to optimise inventory levels for your entire supply chain.
As a result you are hugely more effective and more profitable.
Why do we need inventory management and demand planning?
Demand Planning encourages businesses to look at the factors that impact on actual sales. So the key drivers are: consumer demand, individual promotions and trends. Understanding the flow means that production and supply chain resources can be adjusted accordingly. This is vital to the profit line. So what are the benefits of this approach?
- Better Customer Service.
- Reduced stock levels and storage costs.
- Improved Supply Chain Capacity.
- Better cost control and less strain on cash flow.
- Improved Supply Chain.
- Faster customer response times.
At first this may sounds counter-intuitive. The proof is in the pudding. These are proven techniques. These techniques impact immediately on your business. In addition each one is measurable. It's a fact that companies often do not have the stock they need to sell today. What they do have is plenty of stock that is not selling.
So demand planning allows a business to easily review all of these metrics on a regular basis. For the first time the sales team are actually happy with what the marketing team is doing. Everyone in the chain is working as one unit. Imagine having your production team, your sales team and your marketing team all working as one. As a result, your cash flow forecasts will be more accurate. More importantly, you will have a massive competitive advantage in the market place.
Inventory Management and Demand Planning: Maximising the Company Profit Potential.
All businesses make plans, but how accurate are they? Some people say that it's difficult to quantify the benefits of inventory management and demand planning. We don't agree. Forecasting demand is key to the process of demand and supply chain management.
Okay, so forecasting is never perfect. Errors can result both from either under-forecasting or over-forecasting. Shortfalls from under forecasting is expensive. These can be made good through increases in production and shipment costs. But there will still be lost sales. In the case of over-forecasting, losses to the business often come from discounts that must be offered to dispose of excess or obsolete inventory. In addition to this is the costs of holding excess stock or transhipping excess product from one distribution centre to another. To be effective, efficient Supply Chains must maintain the lowest possible inventory consistent with the highest possible service levels. All the time it's critical to keep costs down.
So in summary, the short-term benefits of integrated business planning will include many improvements.
- Transport planning.
- Inventory requirements planning.
- Production scheduling.
- Capacity planning.
- Manpower planning.
- Sales and marketing planning.
- Purchasing planning.
- Financial planning and budgeting.
So what are the gains? In the longer-term the infrastructure provided by the inventory management and demand planning process is extremely potent. It can be used for powerful business modelling and "what-if" analyses.
Inventory management and demand planning: the tools for success.
Forecasting and demand planning tools are widely available. Many ERP systems have demand planning features included. However, forecasting software alone is highly unlikely to provide the hoped-for improvements.
Finally, to be really successful it must be linked into a recognised company-wide process of sharing information and joint decision making. So, in order to implement demand planning into a business there are a number of prerequisites:
- Clearly defined processes.
- Clearly defined responsibilities.
- Forecasting tools and appropriate interfaces.
Inventory Management Case Study: "Dentsply"
This project required the implementation of a new demand management system across Europe. Dentsply International is the largest supplier of professional dental products in the world. So we commissioned a system selection exercise with an in-depth review of the savings to be made from planning inventory. We helped Dentsply implement this new system to support new Demand Planning, Inventory Optimisation as well as Purchase Planning processes for the Chairside business in Europe.
Inventory Management and Demand Planning: Client Benefits
A Demand Forecast will usually be based on a statistical analysis of historical information combined with future assumptions of growth. At Bisham Consultants we look at all of the key indicators. These will include market development, promotions, new product launchers, competitive activity .... even Bank Holidays and start of the school year.
So yes, it's long list.
The business needs to identify the departments responsible for deciding or monitoring these specific drivers. Bisham will ensure regular updating of individual roles and responsibilities. We also look at compensation and incentives programs where they need to be aligned across the company. In addition, the top drivers in each area will be identified. This allows the business to concentrate on the most important focus areas immediately. We always do this to ensure immediate improvements in profitability.
We will then identify any additional drivers. Over time, we will include these in the demand management process. It's particularly important that all departments co-operate in driver identification and subsequent assumption management. So, in summary, Demand Forecasting is not simply a sales function. The cooperation of all departments is essential.
Inventory management and demand planning = competitive advantage.
Bisham ensure that the Demand Forecasting and Management Process are completed as part of the month-end closing schedule. There are three phases to this.
- Produce a statistical demand forecast based on known history and existing assumptions. Commercially available tools exist to calculate the best forecast available. This will be based on past history, combined with the known effect of forthcoming events. Examples of this might include new product launches, production issues and holiday periods.
- Demand Forecast Review & Demand Management Analysis. A Forecast Analyst will always review the forecast first. Then it will add any other factors based on Market Intelligence that may cause a variance to demand. Competitor activity is often a key factor here. In many SKU businesses this manual review can be quite time-consuming. Bisham are always looking for short cuts to minimise the turnaround time. We specifically focus on fast-moving items or known problem areas because they have a very fast impact on performance.
- Consolidation, Forecast Adoption, and Upload. Bisham then get client approval and combine the forecast data with company strategy. Let's not forget why we are all doing this in the first place. Targets for customer service levels are important. So too are levels of inventory of raw materials and finished goods. We then look at Purchase Orders, Production plans, Manpower, Resource Plans and Transport Plans. Sounds a lot? Yes, it does - but the financial rewards speak for themselves.