4 Causes of Forecast Error and How Distributors Can Avoid Them To Save Cash Now
When it comes to demand planning, distributors may assume that the same demand for the same items will occur at ...Read Post
This article originally appeared as a guest post in Supply House Times, Oct. 2019
Summary: Distributors can optimize their distribution centers by utilizing smart VMI inventory management and replenishment apps in their customers' stockrooms to collect point-of-use replenishment data.
Imagine if your “Very Important Customers,” comprising 80% of revenue, used automated inventory replenishment technology to manage their stockrooms, tracking usage and re-ordering, communicating that data back to you in real time. For those customers, you now have — based on real data — insight into future behavior, including:
The customer’s optimal minimum and maximum inventory levels are calculated, along with average usage, for a particular item. These tuned mins/maxes allow your customer to take cash out of his inventory, while eliminating stockouts. In addition, with that data, a distributor not only knows when a customer needs to order more, but exactly how often and how much. This is what I call “precise demand planning.” It’s simple, but powerful. It is an example of the impact the right technology can have today on the ability for independent distributors to compete.
It’s one level deeper than Amazon can go. And it delivers far more benefits. We’ve seen reductions up to 73% in customer cash spent on inventory and carrying costs. At the same time, distributors have been able to maximize service levels through the elimination of stockouts. If the distributor can simply have their customer track consumption at the point-of-use, not only is there a huge benefit to the customer, there is a huge benefit to the distributor. For the distributor’s part, the distributor benefits not only from a stickier relationship with customers, but from their own more efficient operations. Precise order information allows the distributor to fine-tune its DC inventories because the demand is no longer a forecast, but a known quantity of items and order dates.
Tracking and replenishing inventory at the point of use automatically gives you the data you need to do the required calculations: quantity on hand, average daily usage, minimum and maximum. The power lies in its simplicity. Today’s technology, implemented smartly, helps distributors compete in a world where e-commerce is no longer a differentiator.
Consider all the digital tools available now that can help you compete. Digital strategy is about more than the online sale. The right tools can drive benefits throughout your business that grow sales and profitability for both distributors and their customers. We’re not talking about manual inventory management where your sales team, armed with notebooks and pencils, calls orders into customer service to keep your customers’ shelves stocked.
I’m talking about automated inventory replenishment, using a combination of tried-and-true and emerging technologies, including RFID and smartphones, to manage and view inventory usage and replenishment in real time.
Amazon has changed customer expectations for good; customers’ demand for efficiency with their suppliers requires a new way of thinking for distributors. But luckily, because of most distributors’ already-close ties to their customers, it’s one that they are well-positioned to capitalize on.
Rock Rockwell is CEO of eTurns, a point-of-use inventory management system used by distributors to automate inventory replenishment at the point of use in stockroom and service trucks. Contact Rockwell at firstname.lastname@example.org.
Read more about Precise Demand Planning™ distribution center optimization here.