For many businesses, the cash tied up in stock can be 20%, 30% or even 40% of annual turnover. When considering those amounts, even seemingly small inventory management decisions can have a far-reaching and compounding effect across the organisation and on the bottom line.
At its most fundamental, inventory is also the ability to fulfil orders. An inability to satisfy demand equates to lost sales and potential lost customers. In a period when we’re dealing with uncertainty around production capacity, unpredictable overseas shipping times and local difficulties in driver availability, making the right decisions about stock volumes by SKU is incredibly important to maintaining service levels.
For organisations who are also planning around increasing capacity, improving productivity or introducing new products, the implications of better inventory planning are clear:
Get it right and release working capital to fund delivery of strategic initiatives. Get it wrong and funding for these initiatives potentially dries up.
Planning foundations in place
Solid inventory planning relies on the whole business being joined up in its planning activities in the first place. An organisation-wide process that is underpinned by a single version of a strategic plan. This creates clear understanding across the company and enables effective top-down, middle-out or bottom-up planning.
When that process is also supported by real-time data, then ‘bumps in the road’ can be absorbed without the need to lose time waiting for the next iteration of the planning process.
For most businesses, 80% of their value is generated by 20% of the range of products they hold. Identifying these high-value SKUs and implementing active planning and decision making around replenishment is a key activity required to effectively deliver the strategy.
It takes more than ERP and people’s time
ERP systems alone cannot optimize inventory management. They are not a full-service solution and therefore the planning team end up tied down by having to manage complex spreadsheets and manual processes to extract and load data. All of the many straightforward replenishment decisions are also executed manually, creating further latency and inefficiency.
Not only do these manual processes slow down decision making, but they will also typically involve any ABC XYZ analysis being carried out based on historical performance. When this analysis is instead based on forecast demand – applying the appropriate methodology for individual SKUs – decisions are made with increased accuracy.
Benefits to the bottom line
Implementing automation makes it possible to work in real- or near-time and frees the planning team from these unnecessary manual processes. The opportunities for efficiency savings alone are significant – AGR customers achieve savings of between 33–66% on inventory management costs and 10–25% on inventory replenishment.
Ultimately, improved planning processes and greater accuracy reduces the risk that the cost of inventory restricts working capital for other strategic initiatives. In fact, using the AGR software typically reduces the level of working capital tied up in unnecessary stock by 15–25% for organisations.
To learn more about how the AGR software can strengthen your inventory strategy, get in touch today.