By Dyci Sfregola | Business Planning Consultant
Arguably, one of the most important functions of supply chain management is effective inventory management and control. When managed correctly, inventory can be considered an investment, resulting in a significant improvement on ROI. Organizations with mature, well-defined inventory management policies recognize that inventory management is a collaborative activity executed across several roles and business units, including purchasing, manufacturing, finance, and sales and marketing, with the ultimate goal of having adequate material where needed at a low inventory cost, effectively balancing the cost of production with the cost of inventory, and maintaining sufficient inventory to meet customer expectations. Once the proper data, people and processes are in place, organizations can evaluate the technology needed to support strategic decision making.
With experience of Anaplan implementation as a software solution for inventory management, we’ve come up with a few considerations and best practices for inventory management and control as it relates to software implementations.
Establish an Inventory Management Policy
In order to realize Anaplan’s full capabilities and value, the business processes and rules that drive the modeling and math for inventory planning must be properly developed and documented. An inventory policy should address both broad (e.g. centralized vs. decentralized inventory planning, communication frequency and warehouse geographic locations) and specific inventory management decisions (e.g. make vs. buy decisions for specific items and rules for order quantities, timing and exception management).
More generally speaking, inventory policies that should specify:
- When to order inventory
- How to determine order size
- Relative importance of each inventory item (usually achieved with ABC classification or inventory segmentation)
- Inventory control procedures for individual items or product families
Inventory policies should be influenced by and created with the following factors in mind:
- Customer demand
- Planning horizons
- Lead times including production and transit lead times
- Costs associated with inventory like purchase and transportation costs as well as any applicable holding costs
- Customer service requirements to help determine safety stock levels by item, segment, location as needed
Weighing these factors will help to create an effective inventory management policy that can inform Anaplan inventory calculations, suggestions and reporting based on required safety stock levels and order system policies (e.g. lot-for-lot vs. economic order quantity (EOQ) vs. fixed order quantity (FOQ) and order point system vs. time-phased order point system vs. demand driven MRP system).
Connect and Collaborate
The necessity for visibility and collaboration across the supply chain network cannot be overstated when it comes to inventory management. In today’s horizontal supply chains, inventory processing and control often extend beyond the enterprise. Inventory will either feed into production, be a result of production, or both, so planners, master planners, and production schedulers must coordinate with each other at each level of production planning. Furthermore, inventory management is necessary at retail locations and warehouses and distribution centers, which can be owned by the organization or outsourced to 3PL partners. Supply chains must also manage and control in-transit inventory, raw material and work-in-progress inventory being held and produced at suppliers. With all of these moving pieces and data points, it is critical to have a technology solution like Anaplan that supports connected planning across the entire network, including external partner data and inputs, in order to truly realize the benefits of proper inventory management and control.
Monitor and Measure
There are two KPI categories that should be consistently monitored when it comes to inventory management:
- Inventory costs, which can be related to holding, ordering, and transporting materials, supplies, and finished goods at various nodes of the supply chain.
- Customer service targets related to quality, item availability, order accuracy and on-time delivery
Cost monitoring is both an art and a science that should involve input and insights from Finance. While too little inventory can lead to stockouts and increased expedite costs, too much inventory can have a negative financial impact due to write-offs of obsolete and expired inventory. Constant analysis and evaluation of supplier scorecards, transportation and warehouse costs and partner performance is key to ensuring inventory costs and customer service targets are consistently achieved.
Refine your S&OP Process
Anaplan’s calculation engine provides a scalable solution that makes it simple to conduct complex analysis of SKU’s across brands, product families, categories, retailers as well as time. Organizations can leverage Anaplan’s inventory optimizer to supplement inventory management policies like safety stock setting and cycle stock optimization in order to determine ideal stock levels across all nodes of the supply chain network as well as conduct both top down and bottoms up planning and analysis. Anaplan’s collaborative platform can integrate data from various sources providing a single source of truth allowing for truly connected planning and visibility amongst all trading partners including raw material suppliers, 3PL warehousing and transportation providers, customers, and manufacturing and production facilities, reducing the probability of the bullwhip effect. Reducing holding and transportation costs while meeting or exceeding customer service goals is a balancing act, and having the right technology to increase visibility and calculate key metrics helps supply chain planners determine ideal inventory levels and location to achieve that balance. Organizations should continue to refine their S&OP process to optimize inventory planning in Anaplan while using the platform to help define and maintain inventory targets across the network, forecast inventory levels and optimize inventory.
See Anaplan’s inventory management capabilities in action by checking out our Daily Inventory Management app on the Anaplan App Hub.