| It's a given that maintaining inventory is costly on | | | | asked of you as either a supplier/vendor, or a point |
| many levels, the least of which is the notion of | | | | source distributor of your own catalog of finished |
| stagnant inventory and/or raw materials becoming | | | | goods. Demand planning and forecasting, when done |
| obsolete before your very eyes. In working | | | | thoroughly, keeps you on your toes about what to |
| inventory control, there is often a fine line that marks | | | | expect within any upcoming economic cycle, and to |
| the threshold between having too much on-hand | | | | schedule production accordingly. Factors such as |
| inventory and not having enough to ensure on-time | | | | product seasonality, trends, seller promotional activity, |
| delivery. In the modern supply chain, planning for | | | | and other events that could spike or deflate demand |
| sourcing issues and automated purchasing puts | | | | are considerations of demand forecasting. ERP |
| manufacturers on better terms when it comes to | | | | software enables accurate demand forecasting by |
| real-time inventory management. However, as | | | | going beyond simple sales averaging and takes into |
| lead-times become increasingly reduced and demand | | | | account all factors that could impact the production |
| levels usually unpredictable from one month to the | | | | schedule in negative ways. Tied into demand |
| next, inventory management is integrally connected | | | | forecasting is the idea of looking at the actual |
| to the notion of profit margin. What is necessary is | | | | performance level of the inventory itself. That is to |
| to begin thinking of the "inventory area" as a | | | | say, it is important to produce analyses of each item |
| potential profit center itself-to optimize inventory so | | | | in inventory to see not only the history of demand |
| it works for you, and not against you. | | | | for the product, but also the variability of that |
| Inventory optimization uses data that is connected to | | | | demand and the profit margin for the product. |
| key interrelated factors that influence the efficient | | | | Finally, any inventory optimization must include an |
| management of inventory. The point of inventory | | | | introspective analysis of order frequency. All too |
| optimization is to balance your supply to meet | | | | often, purchasing agents order additional inventory |
| demand at the lowest possible investment in | | | | due to some perceived cost benefit as provided by |
| inventory, using the minimal amount of enterprise | | | | the supplier (e.g., free shipping, volume ordering |
| resources for any given service level, and for each | | | | break-points, etc.). ERP software that optimizes |
| item you introduce into the supply chain. Many | | | | inventory will account for the economic trade-offs |
| manufacturing enterprise resource planning (ERP) | | | | that exist between the lower cost benefit versus |
| software packages touch upon one or more of | | | | the maintenance of the additional inventory in terms |
| these variables, while the most robust of them take | | | | of potential inventory turnover (as measured in time). |
| a multi-tier approach and include them all in a lean | | | | Only then can you get a true sense of what is the |
| system operation. | | | | real cost of having more inventory than you really |
| Of all these inventory management variables, the | | | | need or can eliminate quickly. Most inventory |
| forecasting of lead-time is, perhaps, most important. | | | | optimization models suggest that order frequency |
| Indeed, supplier performance is vital to supply chain | | | | analysis can reduce on-hand inventories by 10 to 15 |
| performance-each domino relying on the other to | | | | percent. |
| remain reliably predictable, upright and steadfast. As | | | | Whatever your business, if you have needs for |
| one falls, so too do all the others. Forecasting | | | | inventory maintenance, you also have the necessity |
| accurate supplier lead-time necessitates not just an | | | | of optimizing that inventory. Your position in the |
| averaging of past lead-times, but a sense of the | | | | supply chain and the ability to make on-time delivery |
| general performance of the supplier as someone you | | | | to the chain, means that you are no longer alone. To |
| reply upon. Without forecasting realistic lead-times for | | | | a large degree there is, in modern manufacturing |
| suppliers, the poor performance of a supplier on one | | | | particularly, a reciprocity like never before. The |
| end means the other end working harder to achieve | | | | intimate relations that exist between supply and |
| on-time delivery. | | | | demand mean that while sourcing predictability is less |
| At the same time, for inventory optimization it is | | | | certain, remedy can be found in the usefulness of |
| important to have a good sense of what may be | | | | ERP software systems. |