Measure twice, cut once. The direct meaning of this common saying is relevant for carpenters, but its symbolic meaning is important for businesses in all industries.
Every ounce of preparation is worth its weight in gold, especially when it comes to processes and practices that have significant repercussions when done improperly. Demand planning for your supply chain is one such process.
If you are frustrated with the inefficiencies in your supply chain, you’re not alone—especially not in the current supply chain climate. If you want to implement supply chain inventory optimization smoothly and effectively, there are several factors to consider.
You want to optimize your supply chain and inventory processes, and we’re here to help. If you take all the elements we discuss in this post into consideration, your implementation process will be smoother, allowing you to optimize your supply chain with ease.
Building Blocks of Supply Chain Inventory Optimization
Before we dig into our list of the five things to consider before implementing a supply chain optimization process, let’s talk about inventory optimization more broadly. What is supply chain inventory optimization?
This process involves balancing manufacturing, shipping, warehousing, and sales timelines. When you achieve optimization, you’ll perfectly meet customer demand while maintaining minimal safety stock.
To achieve supply chain visibility and optimization, you need to meet three criteria:
- Demand Planning: Demand planning includes forecasting and data analytics processes that enable you to estimate how much stock you need to meet upcoming demand. You’ll calculate this based on trends, seasonality, past sales, and more.
- Inventory Strategization: You’ll need to strategize where to store your inventory across warehouses and fulfillment locations to ensure you always have the stock you need at the location you need it when it’s needed.
- Inventory Replenishment: Replenishment is the process by which you’ll determine which products need reordering and in what quantities. During this process, you’ll need to keep manufacturing and shipping timelines in mind.
Supply Chain Inventory Optimization is challenging to achieve, but when successful, you’ll be able to enjoy a multitude of benefits. Some benefits include increased data visibility, time savings, better margins, and increased sales. Your forecasting and data will also be more reliable than ever before.
With this foundational information in mind, let's cover the top five things you need to know before implementing supply chain inventory optimization processes in your organization.
1. How To Prevent Demand Planning Challenges
Inventory forecasting is vital to the success of your business. You’ll face expensive challenges like overstock or stockout without proper demand forecasting processes and tools. However, demand planning success is far from simple to maintain.
Some of the common challenges associated with demand planning include:
- Trusting the Data: To fully leverage the benefits of demand planning, you and your team must let go of the natural tendency to overstock and learn to trust the data.
- Compiling Disparate Data: Your data must be organized and up-to-date to get demand planning right. When you’re gathering data from multiple tools and systems to create your demand forecast, information can slip through the cracks, leaving you with an incomplete picture or an inaccurate forecast.
- Navigating Unexpected Circumstances: If you’ve been in the direct-to-consumer selling game long, you know that you should always expect the unexpected. No matter how robust your demand planning processes are, there is always the chance that something unforeseeable will occur that throws your estimates off.
To overcome demand planning challenges, you should work to minimize the number of systems and software solutions you use.
You should also cultivate a data-oriented mindset in your organization to ensure that you and your team are inclined to trust your demand planning data. Lastly, regardless of how well you trust your demand planning algorithms, you should maintain a small level of safety stock, just in case.
2. Multi-Channel Considerations
Do you sell across multiple channels?
Selling across multiple channels is important to the success of many modern businesses, but there are several associated challenges. When you have multiple channels, you need to ensure you’re tracking and planning for inventory between online vs. offline sales and coordinating warehouses based on shipping channels.
Additionally, you need to take steps to align your KPIs among your various locations and teams to ensure everyone is moving toward the same goals. If your channels aren’t aligned, you will find it challenging to optimize your supply chain efforts in even one channel, let alone across them all.
To successfully optimize inventory across multiple channels, you must keep lines of communication among all teams and players open. You should also pursue a central inventory planning or supply chain management dashboard. This dashboard must be visible to all key players in your supply chain to increase visibility, clarity, and trust.
3. How To Navigate Performance Tracking Processes
The third step in preparing for inventory optimization is determining your critical KPIs. KPIs, or key performance indicators, are metrics that can help you determine whether your inventory optimization efforts are successful.
Some standard inventory-related KPIs you may want to consider:
- Inventory to sales ratio: Available stock versus sold stock.
- Weeks on-hand: How long are you holding onto inventory, on average?
- Inventory turnover rate: How many times was inventory sold and replenished over a given time period?
- Average inventory: How much stock do you have in your warehouse(s) over a given period?
- Cost of carrying: Cents per dollar your business spends on inventory overhead
KPIs are vital because, without proper performance tracking, it’s challenging—if not impossible—to determine whether your optimization efforts are working as desired. The best way to succeed in this area is to set measurable goals and track your progress toward them regularly.
4. Just-in-Time (JIT) Process Implementation
When optimizing your supply chain and inventory processes, you will want to consider implementing just-in-time (JIT) principles. As the name suggests, JIT requires you to set up your ordering and shipping timelines so that your product is ordered just in time to be processed, manufactured just in time for shipping, and shipped just in time to arrive at your warehouse to fulfill current orders.
JIT inventory processes are beneficial because they can help you save on inventory overhead and warehousing costs. However, it’s challenging to get these processes exactly right.
For example, your brand reorders products based on your current demand forecast. In an ideal world, you’ll be able to leverage real-time data to rebalance the necessary quantities at every milestone in your supply chain. If your systems are set up correctly, and your data is up-to-the-minute, you could theoretically operate your entire business without a warehouse.
To leverage JIT inventory processes, implement robust inventory forecasting processes. You should also work to streamline your purchasing practices and delivery timelines.
5. How To Choose the Right Tool
Lastly, you’ll need the right tool to optimize your supply chain. Which tool is the right one? Our answer may be slightly frustrating: It depends.
No tool is one-size-fits-all. The best tool for your business will depend on your industry, business processes, existing tech stack, and more. For example, the perfect inventory optimization tool for wholesalers may be a poor fit for direct-to-consumer sales.
To choose the right tool for your business, follow this simple, four-step process:
- Define your goals: What do you want to achieve with your inventory optimization tool?
- Establish key features: What do you need your software solution to be able to accomplish for your business? What functionality do you need?
- Review testimonials and reviews: What are current customers saying about the tool?
- See it in action: Get a sense of how the tool works by seeing a walkthrough or demo environment of the software.
Implementing Supply Chain Inventory Optimization The Easy Way
Before moving forward with your supply chain inventory optimization implementation, consider the five items discussed in this post. By accounting for all of these potential challenges and pitfalls before implementation, you can optimize your supply chain without running into trouble like stockout, dead stock, and overstock.
The success of your business depends on having the inventory you need in the right place at the right time to meet customer demand. Optimizing your supply chain will help you to achieve this, increasing your profits and keeping your customers satisfied.
Flieber’s inventory planning and optimization software offers you all the features and functionality you need to forecast, replenish, and manage inventory across all locations, warehouses, and channels. Schedule a demo today to see how Flieber can help your business level up its inventory optimization game!