Inventory is a requirement to protect supply and is one of the most important assets of any supply chain. Inventory ensures continuity of supply and service requirements during procurement or manufacturing lead times. It also serves to protect against unplanned variations to demand and supply within those lead times.
All inventory levels must be justified and minimised. Every business needs to have a clear inventory management policy that ensures inventory levels are bridged with required service levels. ‘Just in case’ and ‘x-weeks of supply’ approaches are wholly inefficient and risk, not just higher inventory investment, but also poorer customer service levels, higher warehouse operating costs and stock obsolescence.
Principally inventory targets should be comprised of two elements: cycle stock and safety stock. Cycle stock is there to cover the normal expected demand during the replenishment lead time, whilst safety stock is an additional buffer to protect against unexpected demand and supply variations. The assessment and calculation of cycle stock and safety stock can be complex, requiring a detailed understanding of probability and statistics. The is where our inventory consultants excel; we not only bring the knowledge and methodology for inventory optimisation, but we also combine this with our real-world experience of supply chain operations.
Our inventory consultants can undertake a full inventory analysis for you. Using historical and forecast data we can establish the optimum inventory target for every product, based on the target service levels required and any working capital restrictions that need to be observed.
There are many approaches to establishing optimal inventory targets we can take, depending on the client requirements and the industry sector. Click on the tabs below to read about a typical 8 step approach our inventory consultants would take with a retail operation.
Inventory modelling requires extensive statistical analysis and consequently requires a solid foundation of transaction and forecast data. It is crucial to the process of inventory modelling to establish at least a 12-month data profile reflecting product sales, product purchase costs, planned lead-times, actual lead-times and supply variations.
Building the data profile is the first task our consultants undertake. Of course, we understand that, for many businesses, data extracts from their systems aren’t always perfect. To negate potential data errors our consultants are adept at cleansing and validating transaction and forecast data. We ensure outliers are assessed and removed and all data sources are cross-checked to provide the most accurate platform for inventory assessment.
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