Inventory Planning & Optimization
Insufficient focus on the stock level has a significant impact on the organization’s working capital. Inventory optimization has further gained in importance since the economic crisis, which intensified the pressure on working capital, and a healthy cash flow is increasingly seen as a way to maximize profitability.
A solid approach to inventory planning is advisable because blindly cutting inventory could have a severe impact on the service level, resulting in higher operational costs in an attempt to solve service issues. It is therefore important to keep the three dimensions of the supply chain triangle – service, cash and cost – in balance.
So how can you reduce your stock in practice, while keeping the inventory drivers under control? Start with your inventory policies. Think for example of clearly defining when to opt for MTS/MTO, stock/non-stock, centralized/decentralized stock or push/pull reordering. The inventory policy then becomes input for defining the right inventory parameters, for both single-echelon and multi-echelon inventory optimization. The parameters provide input into a planning process. There are several reasons to temporarily hold more or less inventory, e.g. to level the production or in the case of seasonal inventory. Getting a grip on your inventory requires you to plan for the inventory peaks and troughs using scenario management to show the effects on your cash flow. Lastly, inventory monitoring is an absolute must to be able to optimize the inventory planning process and write off slow-moving and obsolete inventory.
Solventure has developed a model for comparing MTS and MTO situations and for defining the most optimal inventory policy. Our consultants are also masters of techniques like ABC/XYZ classification. They can help you to calculate your safety stocks using a stochastic model or appraise lot sizes using a wide range of methods such as the Economic Order Quantity (EOQ) or the Wagner Whitin algorithm. Another important objective of the inventory planning process is to show the inventory projection over the next 3 to 18 months. A tool like Arkieva is not only convenient for this, but above all it allows you to improve the inventory planning over time.
Do you want to take a deep dive into how inventory, in addition to cost and service, has become more important in the S&OP cycle? Check out our white paper!
Interested to learn from other
Supply Chain Professionals?
Want to be informed about the next webinar on Inventory Planning & Optimization?
In this webinar Prof. Dr. Bram Desmet, Managing Director of Solventure will talk about “Inventory Planning & Optimization as an essential part of your S&OP process’.