Demand planning and inventory management processes exist to help avoid:
- Unnecessarily high levels of inventory (overstocks)
- Costly inventory write-offs
- Excessive use of premium transportation services
- Missed commitments and poor service levels
ERP systems track stock and sales at SKU levels but inventory optimization is beyond them. Most retailers and wholesalers therefore take spreadsheet planning in Excel as their starting point.
This is a sub-optimal solution, however, containing multiple hidden costs. Manual implementation of each custom sheet results in a non-standard process. This leads to an element of risk, inflexibility within the system and a long-term constraint on growth. As the models are built and evolve, they deviate more and more from any standard starting point.
Spreadsheet models are rarely documented and although they may make perfect sense to the team member who built them, stakeholders across supply management need to be able to use and derive insight from the system. If the only person who really understands the model is absent through sickness or holiday or leaves the business, that spreadsheet becomes an unsupported single point of failure.
With multiple people manipulating individual spreadsheets, the documentation (or lack of) of changes made is another concern. Alterations are unlikely to be straightforward, requiring manual intervention across multiple fields, and when they are made there is no immediate method for logging them and tracking their impact on the model.
Precious time resources are invested into maintenance of a spreadsheet-based system – this unnecessary support overhead is costly to the business. To handle all of your products, the sheet is likely to be large, in the order of thousands of cells at least. With this much data in a single spreadsheet a regular auditing process is required to ensure the information is all being handled correctly, especially when you consider the research that estimates 94% of spreadsheets contain errors. Let’s not even talk about the possibility of the whole sheet becoming corrupted…
In any business handling a range of goods, it is unlikely that patterns of demand will be consistent across all products. Applying a one-size-fits-all inventory forecasting methodology will result in a statistically unsound approach of building errors upon errors due to invalid assumptions for some items. We’ll explore the implications of the multiple variables at play in inventory optimization in our next post.
If we’ve already convinced you that spreadsheets are not up to the task of handling your inventory management processes, get in touch today to see just how much of a difference the AGR software could be making to your market position.