My first memory of inventory is from a conversation I had with my Dad when I was probably 10 years old. I remember him telling me to go to a particular store because the owner kept a lot of inventory on hand. He equated that to the owner being a wealthy man, who obviously knew how to do business. The fact that he was willing to invest a lot of money in order to keep his customers satisfied was, in my Dad’s eyes, a confirmation of an old adage: you have to spend money to make money.
These days, things tend to be a bit different. The talk is all about scientific inventory management and keeping no more inventory than you really need. There is an army of experts doing tons of work across companies to ensure the month/quarter/year-end inventory ends up at the right levels. And there are many software packages that help with managing the inventory. Below we have outlined the three different types of software modules that must be utilized in order for a company to get better at inventory management.
- Analytics and Policy Setting: This type of software deals with making the inventory data visible. It also analyzes the data to recommend inventory policies and identify an obvious mismatch between demand and inventory profiles. The functionality can be sub-divided into:
- Visibility and Analytics:
- How much do you have?
- Where do you have it?
- When was it produced?
- Where was it produced?
- What are the days of supply?
- What is the inventory velocity? Etc.
- Dead Inventory
- Excess Inventory
- Forecastable, etc.
- Inventory Policy Setting:
- Make to Order
- Make to Stock
- Make to Negotiate
- Assemble to Order (Postponement)
- Visibility and Analytics:
- Target Setting: This type of software is working to calculate inventory targets based on variability in demand and supply. Typical outputs are safety stock, cycle stock, target stocks, etc. There are multiple flavors of this.
- Rule of thumb based (e.g. days of supply)
- Single Echelon
- Single enterprise Multi-Echelon
- Multi-enterprise Multi-Echelon
- Supply Planning (AKA Inventory Planning): This type of software is planning out the inventories in the future subject to the constraints in the supply chain. Whether rough cut, rule-based or optimization based, it will calculate future projected inventory based on capacity, Bill of Materials (BOM), Bill of Distribution (BOD) and any business constraints.
There are software packages that have all three inventory modules; there are some that have 1 or 2. Different software suites specialize in different aspects of inventory management. A wise practitioner diligently matches his or her requirements with what the solution provides. In doing so, it is helpful to ask the questions using the right terminology or expected behavior (which can then be translated to the right terminology). Keep in mind that people mean different things when they use words like inventory planning software, so make sure to ask the right questions.
Learn more about managing inventories with Arkieva by downloading our whitepaper.