How to plan inventory levels in today’s environment

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How to plan inventory levels in today’s environment-HFA blog_image

Congratulations! You have managed through a period of economic upheaval not seen in generations. Over the last two years, the global economy has experienced unprecedented supply and demand disruptions. Unfortunately, the global supply chain’s existing risks will persist in the near term. For the first time in their living memory, many Americans have to adapt to a world of scarcity. Here is some practical advice for optimizing your existing resources to help your inventory demand planning for the future.

Data drives decisions; therefore, accurate data is a must.

Distribution centers and stores’ inventory accuracy drives fill rates and customer satisfaction. Develop a plan to reduce the impact of incorrect inventory quantities by focusing on areas that have the greatest effect by employing the following tips:

  • Apply the Pareto principle to create a hot or top 50 list that drives sales
  • Cycle count items at or below safety stock minimums
  • Verify all warehouse canceled picks
  • Verify physically and systematically all inbound receipts, put-a-ways, and replenishments
  • Check for systemic location holds as well-aged inventory control locations

Inventory replenishment systems should reflect the actual environment

Even with the advent of AI and other advances in technology, inventory and replenishment models share a common set of attributes. Fundamentally, these models attempt to produce a reasonably reliable prediction of a future state used to reduce risk and drive optimization of resources. In pre-pandemic times an entire global supply chain was built upon relatively stable lead times with low lead times variances, accurate demand histories, and consistent seasonal swings. The stability of the past has been radically altered. The new environment begs the question, do my settings now reflect the realities of the supply chain? The following attributes should be reviewed to understand what changes might be necessary.

  • Lead Time
  • Lead Time Variance
  • Demand
  • Seasonal Index or Base Index
  • Review Periods

Monitor movements and measure the outcomes

  • Review and track inbound purchase order flows
  • Monitor distribution fill rates and canceled picks
  • Monitor cycle count adjustments and trends
  • Monitor customer delivery trends
  • Track inventory aging and return on inventory by item

Provide decision-making structure and authority to foster rapid responses

A common organizational tool used in crisis management is the response team. A response team is a dedicated group of individuals with the responsibility and authority to make critical decisions regarding the prioritization of work efforts and communicate expectations and outcomes to all stakeholders. The team is typically guided by an internal playbook or a crisis response rules of engagement guide outlining tasks and interactions with stakeholders. The response team interactions usually focus on three groups: suppliers, customers, and internal stakeholders.

A crisis represents an opportunity for success and a potential springboard to improve processes. Communicating frequently, defining priorities, creating accurate data-based reporting, and aligning all partners may enhance relationships, build trust and provide the basis for a competitive advantage.

 

CLICK HERE for more resources from HFA to help your operations & warehousing.

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