How to Calculate Optimal Inventory in Stockrooms and DCs
One of the hardest tasks for distributors and their customers is to optimize the customers’ inventory levels, ensuring enough quantity ...Read Post
Rather than view the last 10 feet of the supply chain as the end of the road – what if you saw it instead as a starting point: the first 10 feet of your demand chain?
With the eTurns TrackStock Automated Replenishment Apps, distributors track and replenish inventory for customers at the point of use. Distributors can leverage the actual customer demand data collected, using the TrackStock Precise Demand Planning™ Solution, to optimize their own distribution centers, reducing carrying cost and improving customer service at the same time.
Imagine if you were able to apply this idea for your Very Important Customers (VICs), which comprise about 20% of your customers but 80% of your revenue. TrackStock would provide you with:
And all you need to calculate those valuable data points are a few critical metrics by item, tracked at the point-of-use:
The good news? eTurns TrackStock already does this.
A customer’s optimal minimum and maximum inventory levels are calculated and adjusted within eTurns TrackStock, and measured along with usage for a particular item. These tuned mins/maxes allow a customer to take cash out of inventory and eliminate stockouts. And aggregated across a distributor’s VICs, a distributor can use this data to fine-tune its own inventory management.
It’s simple and powerful. It’s a dramatic shift in how many distributors serve customers: from “Just in Case” to “Real Time.” Many distributors overstock to protect themselves, whether at their own locations or their customers’.
Historically, most distributors have relied on generic forecasts based on aggregated past orders. While efforts are being made to improve upon that historical data with seasonality, economic order quantities and other methods, distributors should be skeptical of depending too much on order data, which doesn’t necessarily (and usually doesn’t) reflect actual usage. Distributors also tend to incorporate sales reps’ forecasts, based on reports of expected purchases, into their planning. I’m not blaming them – you need to use the data you have to get as close as possible to the stock levels that are required to serve your customers.
But technology exists now that allows you to get a much more granular view of actual customer usage. With data gathered in real-time at the point-of-use, distributors can take a much more proactive approach to demand planning with fast-turning items, consumables that must be continually replenished. A distributor needs as little as 45 days’ worth of data from these VICs to start. We frequently see that many of the items distributors are stocking for customers haven’t even been used in that time frame. That’s a sign that Quantity on Hand for those slow-turning items can be reduced at customer locations – or removed altogether and placed in a nearby DC for servicing.
For the remaining frequently replenished items, distributors can help customers optimize their stockrooms with eTurns TrackStock and spend less. We’ve seen reductions of up to 73% in customer cash spent on inventory and carrying costs. Not only are distributors creating a stickier relationship with their customers, they are maximizing service levels through fine-tuned operations. Demand is no longer a forecast, but a known quantity of items and order dates.
Automated inventory replenishment with eTurns TrackStock, using a combination of tried-and-true and emerging technologies, including phones and sensors, lets distributors manage and view inventory usage and replenishment in real-time. That means that distributors can meet customer expectations of efficiencies in the way they shop and buy. And the TrackStock Precise Demand Planning™ Solution helps distributors better service their customers’ needs, ensuring that they have what the customer needs when and where they need it – and nothing more. The cash distributors aren’t spending by overstocking can then be re-invested in other areas to improve the customer experience.
Thanks to distributors’ already-close ties to their customers, this is one area where they are well-positioned to hold back Amazon.