Inventory happens when there is a mismatch between supply and demand. Projected Inventory can be calculated based on current inventory, future sales projections, proposed manufacturing, procurement, and distribution plans. Scientific and system-driven Inventory Projection facilitates a quick decision-making process and enables a prompt analysis of alternative what-if scenarios. Systemic Inventory Projection has a huge positive impact on the cost of goods sold (COGS) and cost of sales (COS).
Following are the Top 7 Benefits of System Driven Inventory Projection:
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Increased Customer Service Levels
Wouldn’t it be great to have the right products, in the right quantity, at the right place and time? Well, this can be made possible through effective Supply Chain Management is driven by scientific data analysis and system-based Inventory Projection. Customer Service Levels can be improved by 5 to 25 percent, depending on the type of business and level of improvement initiatives taken by the organization.
Read More: 8 Common issues to avoid when creating a customer segmentation strategy
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Reduction in Delivery Lead Time
Effective Inventory Projection has organization-wide positive ripple effects. Purchasing Managers have better control over raw material planning and procurement. Supply Chain Managers have better visibility to Inventory movement and can proactively take mitigation steps on low inventory and excess inventory projections. Distribution Managers can anticipate the regional supply and demand scenarios and fine-tune their Distribution Resource Planning. All these proactive activities across the Supply Chain leads to a reduction in delivery lead times to end customers.
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Increased Manufacturing Efficiency
Manufacturing Managers and Production Planning Teams can work closely and objectively with Demand Planning and Supply Chain Teams. Based on reliable Inventory Projection figures, timely and informed decisions can be taken on improving the production cycle runs. Time-consuming changeovers and small production runs can be avoided through better visibility on the expected downstream inventory movement and demand-supply projections. Increased manufacturing efficiency further helps to reduce manufacturing costs and delivery lead times resulting in increased customer service levels.
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Reduction in Inventory Costs
In a typical business scenario – raw material, packaging material, work in progress, sub-assemblies, semi-finished products, and finished goods account for 65 to 70 percent of the total cost of goods sold (COGS). Unreliable and erroneous projections lead to bullwhip effect across the Supply Chain leading to unnecessary buffering at multiple decision points like Purchasing, Stores, Production and Distribution. With system driven effective Inventory Projection, safety stock levels and buffer inventory levels across the Supply Chain can be reduced.
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Improved Cash Flow & Working Capital Requirement
Cash Flow and Working Capital are the lifelines of any business. Ask any CEO, CFO, Finance Manager and Business Manager – the importance of these two performance indicators, and they just can’t stop emphasizing the criticality of Cash Flow and Working Capital. Scientific and Systemic Inventory Projection leads to the reduction and optimization of inventory levels across the Supply Chain. Reduction in delivery lead time to end customer increases the confidence levels, and this, in turn, further optimizes the inventory levels. All these improvements lead to an increase in cash flow and a reduction in working capital requirement of any business.
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Reduction in Obsolescence
Timely and accurate Inventory Projection is particularly useful for raw material and finished goods with lower shelf life, with seasonal demand or with a high risk of technological obsolescence. Purchasing and Supply Chain Managers can take proactive steps to mitigate expiry or obsolescence risks of such items with excessive inventory. This further leads to improved financial projections for the organization.
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Better Negotiation of Supplier Terms
Advanced and reliable Inventory Projection figures are of great assistance to Purchasing Managers. They can provide more accurate and more reliable, medium to long-range forecasts to their Suppliers. Purchasing Managers can hence negotiate better terms with their Suppliers. These terms include purchasing price, delivery lead time, supplier capacity booking, delivery mode and cost, minimum order quantity and delivery scheduling.
Learn More: On-Demand Webinar – Striking the Balance Between Over-Stocking & Under-Stocking
Properly planned and implemented Inventory Projection tools can work wonders for your business with tangible improvement results. A well-designed Inventory Projection module is agile, dynamic and compatible with your existing ERP system. Get in touch with Arkieva’s experts for consultation for customized and personalized Inventory Projection tools for your business!
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