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The Art and Science of Inventory Management – Part 1

Inventory control is execution; inventory management and planning is strategy. Planning feeds to the distribution center and warehouse operations, and it's essential. To explain the significance, I often give an example that everyone can relate to: If you were going on a cross-county car trip, you would need to understand how much time it would take you to reach your destination, plan your route, figure out where you would stop overnight or for gas, provision funds for the trip, etc.

Distribution is a transaction-based industry. Inventory planning is all about addressing the need for both operational efficiencies and customer service, the cost to carry and the cost to order. 

Carrying no inventory isn't the answer - as you'd kill your organization with administration as you'd need to cut a purchase order for every single line item. The alternative "stock it and they will come approach" is also both risky and impractical due to capacity constraints

Planning is about finding the optimum meeting point between these two extremes (minimizing the aggregate cost to carry and to order) and avoiding guesswork. The goals is to have enough (but not too many) of the right items and none of the wrong items.

Today's demand forecasting systems, also called advanced planning or forecasting systems help determine how much an organization will sell in the near term. "Near term" is important because lead time is a key consideration. If you're ordering goods from overseas it may take eight weeks for those goods to arrive, whereas if you are ordering from a vendor across town, you have more flexibility. 

You need to forecast per SKU and per location so you have both a holistic view and a deep dive. When forecasting by SKU, you need to know: usage, movement, sales, transfers and consumption. The product needs to be in the right "swim lane."

Epicor we believe is an advantage to having a single version of the truth by using the same systems and same database - easier, greater visibility in real-time. If you have a stand-alone planning system and a best-of-breed WMS system, it's become way easier to integrate via APIs, however you still will have competing logic in each system and you'll have to work around this overlap and redundancies which can become problematic. Also level of integration may be degraded and not real-time, which can be impede with operational visibility and can become a stumbling block when you need to provide answers to customers. In Part II of my blog, I'll be speaking to various demand planning scenarios that must be taken into account for successful inventory planning and management.

Posted by Michael Lovelace, Sr. Dir., Sales & Business Development, Distribution Group Americas, Epicor


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