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Inventory drives revenue (and success) for your organization, and for many companies, inventory is the primary revenue stream. As a result, inventory management and planning must be a priority.
In this article from Optilogic, our team explores best practices for inventory management. How can you create a planning and management strategy for your unique needs, and what tools do you need to make it happen? We cover this and more below. Read on to get started.
The Importance of Inventory Management
Inventory management is how an organization orders, stores, uses, and sells inventory. This means when inventory is at the crux of your operations, a robust management and planning system is essential.
Poor inventory management at any point in your supply chain will lead to organizational issues. Improper management and planning can result in excess and obsolete inventory at service, expediting costs, and transfers between warehouses.
How Supply Chain Design Impacts Inventory Management
Supply chain network design dictates the structure and success of inventory management. Below we explore how supply chain design (SCD) shapes and influences inventory management practices in your organization.
Inventory planning and management impact costs, margin, and service. Organizations seeking to optimize operations must create and implement strategies that promote effective inventory management and planning.
1. Identifying and Understanding Design Elements
The supply chain comprises various elements and factors contributing to streamlined operations within your organization and your inventory planning and management. To create an inventory management strategy that works for your unique needs, you must identify and understand the essential elements of SCD, which include the following:
- Nodes of your network
- Location of those nodes
- Service territories
- Customers served
- Origins of inbound
Determining the above factors is the first step in creating inventory planning and management strategies.
2. Evaluating Product Inventories: Structure, Form, and Function
Once you’ve established your physical supply chain structure, you can evaluate product inventories: which products are kept in inventories in each location and, in some cases, the form they’re kept in, including raw materials, semi-finished goods, and finished goods.
Does your inventory have unique characteristics that you must consider, like the need for cold storage, shelf space requirements, or pharmaceutical regulations and expiration dates? Specific product types require unique storage characteristics that you must account for.
3. Inventory Right-Sizing
Once you know the structure, form, and function of different products, you can think about what level or volume you need to carry this inventory. Determine the inventory investment to support certain service levels. Your teams must determine the tradeoff between your inventory investment and the type of service you hope to achieve.
Organizations evaluating inventory volumes approach these questions with different needs and motivations. Some companies may have excess inventory and look to reduce that inventory and lower their investment. Others may be achieving well below their desired service; in which case they may have misplaced inventory or don’t have the inventory to support given service levels.
Regardless of where you fall on this spectrum, your goal should be to right-size your inventory. You want to balance excess and lack to invest appropriately and right-size your inventory needs.
4. Optimizing Inventories with Supply Chain Design
Many companies invest in planning solutions, hoping to execute better inventory targets. The widespread assumption is that every product should be stocked in every location, and most organizations don’t consider other policy options that might drive better service or provide tradeoffs regarding location, lead time, or demand variabilities.
Many of the planning policies in these solutions are heuristic, rules-based policies preset by planners. As a result, organizations don’t know if these solutions are working optimally for their specific needs at any time.
Supply chain design ensures that you create policies and practices that optimize inventory management and planning for the present and the future.
5 Best Practices for Effective Inventory Management
You know the value and necessity of a solid inventory planning and management strategy. But how do you create a plan that best serves your organization? Read on as we explore the five best practices for effective inventory management.
1. Test Inventory Optimization Recommendations with Simulation
Many companies try to gauge inventory policy performance according to optimization-based, high-level assumptions regarding demand and service. However, simulating policies with transactional level data and day-to-day variability is the best way to capture how well an inventory policy will perform.
Simulation allows you to create variability around demand, lead times, or other factors that affect your inventory, providing service-level metrics for your outputs. You get visibility to all echelons of the network, delivering in-depth, data-driven insights that empower you to make the best decisions that support your inventory strategy.
2. Ulimited Scaling to Match Your Growth
Your organization will grow. And when it does, the ability to scale will become crucial to sustainable success in your market. Your inventory planning and management practices must have the ability to scale alongside your organization.
3. Utilize AI-Guided Technology
Additionally, you need programs that can run scenarios synchronously and deliver results quickly. Scaling with a guided AI technology to drive multiple scenarios or simulated policies will help you determine the best option to help you execute your strategy.
4. Regular, Repeatable Testing
As you create your inventory planning and management strategies, you must employ regular, repeatable testing to ensure your decisions are optimized to meet your KPIs. You need the option and ability to quickly test current and future state policies that can feed planning and implementation solutions seamlessly through APIs and other types of connections.
Additionally, you want to conduct testing routinely; once isn’t sufficient. Inventory management must be a repeatable and continuous process built into your supply chain network design.
5. Build around the Interconnectivity of Policies
Design isn’t always about the physical elements of your supply chain. Your policy is a crucial aspect of design, too. And policies change. Demand shifts, supplier breakdowns in their level of service, and delays or halts in production drive policies for inventory that might need to be altered.
Many planning solutions assume inventory connectivity is static. For example, transportation and routing are often considered fixed factors, which means the solutions only solve for inventory. This assumption neglects many variables that affect your organization.
Understand that interconnectivity of policies is fundamental to effective inventory management. Inventory isn’t executed in isolation. Your sourcing, production, and shipping are connected, and your planning strategy should reflect that.
Build Resilient Inventory Management Strategies with Cosmic Frog
Your inventory approach will determine your organization’s success. It affects every aspect of your company. And if done right, it will significantly streamline your operations and boost your ROI. As you choose inventory management platforms, you need a solution that anticipates your needs and meets the evolving demands of your organization.
Optilogic’s Cosmic Frog is the all-in-one SCD platform you’re searching for. From network structure and flow to optimization, we create a design that sets the foundation for your success. From there, we can simulate policies and interactions to understand your current strategy’s performance and make shifts that allow you to optimize even further.
Optilogic’s cloud-based platform delivers the horsepower you need to run thousands of scenarios simultaneously. Backed by an AI algorithm to guide search, we provide a unique approach to the inventory analytic process that allows us to determine the best set of policies for you. All the while, Cosmic Frog prioritizes resiliency, so your supply chain can withstand –– and carry on through –– whatever disruptions come your way.
We do all of this, and we do it in an affordable, easy-to-test solution set that you can get right now. Start your free trial today to learn how resilient supply chain network design can establish and support inventory management strategies that propel your organization toward success.