Central questions in inventory management
- How do I avoid shortages?
- How do I avoid overstocking?
- How do I prevent dead stock?
- How do I reduce stockholding costs?
Perfect balance in inventory management
Good inventory management begins with the definition of meaningful goals. Only then it can be analysed where’s potential for optimisation because: "If you don't know what you are looking for, you will never find it".
The analysis thus shows the conspicuousness. At the same time, however, one should also search for the cause of these "conspicuousness"; because surprisingly high or surprisingly low stocks can certainly be the result of a sensible stock strategy.
Once the root of the problem has been identified, measures are determined and implemented.
The needle in the haystack...
Depending on which goals have been defined, the question arises as to what needs to be controlled. For example, if the aim is to reduce tied-up capital, it is necessary to find out where the capital guzzlers are located, e.g. in the raw materials, in the finished goods or the purchased parts.
If the cause lies in the raw materials, it is important to determine what the main sources are and why they are being hoarded. Is it based on the wrong procurement strategy? Is the forecast too inaccurate or is the planner too cautious? Well-set parameters and rules can help to uncover this; simulation programmes support the planning of measures.
Such simulation programmes compare the updated state while maintaining the set parameters with the state that results from newly set parameters. Simulation programmes are particularly important because changed parameters in inventory management only show their effect with a time delay.
On the one hand, this means that success can take some time, but on the other hand, it also means that incorrectly set parameters can lead to a situation that cannot be corrected ad hoc.
ABC XYZ analysis: the heart of inventory management
A combined display of value and behaviour of individual materials or material groups shows at first glance where to look more closely.
In the dashboard, the view can switch between value and piece at the touch of a button; this helps in finding potential.
Keeping key figures in view at all times
Logistical key figures are ten a penny. The trick is to filter out the relevant ones, track them and derive measures if necessary. The central key figures in supply chain management include the reorder point, the stock level and the safety stock. There is a great potential for savings here – especially if the replenishment lead times are not right or the stock levels and safety stocks are too high.
Unnecessarily high stock levels and safety stocks tie up too much capital and increase the risk of slow movers and dead stock because, for example, a material has been replaced by a more modern, climate-friendly one or the demand for a product has ebbed. With the right analysis, e.g. in ifm’s controlling solution, you can track down the dead stock and eliminate it.
Of course, it is even better to prevent dead stock from arising in the first place! Here, too, intelligent software systems can provide support, e.g. by setting up a reliable forecast, incorporating information about the product life cycle into procurement and determining safety stocks not according to gut feeling but according to incorruptible algorithms.
Reorder point:
When the reorder level for a material is reached, this material must be reordered.
The reorder level is calculated as follows: (daily consumption x delivery time in days) + safety stock = reorder level.
Stock level:
The amount of the desired stock level depends on the assessment of the procurement and sales market. It is thus a strategic consideration. However, the higher the stock level, the more capital is tied up and the lower the “stock turnover time”, the more economically the company operates.
The stock level is calculated as follows: Østock = 360 days * Østock/yearly consumption
Safety stock:
To be able to compensate for unexpected fluctuations in demand and thus avoid delivery failures and loss of customers, companies usually calculate a minimum or safety stock.
Although this "iron reserve" ensures the smooth running of the supply chain, it also ties up capital. The safety stock is added to the basic stock.
The corresponding formula is: 1/3 * consumption in the replenishment period = safety stock.
Do without experience and expertise?
An error-free, automatically controlled ordering process that manages the company's supply chain processes with maximum efficiency. In an ideal and completely plannable world, this could work, but our world does not always act logically and continuously.
There are, e.g., unexpected events such as weather phenomena, sporadic events such as sporting events, political changes and dependencies between individual events that cannot be predicted by evaluations and algorithms.
All these events can have an impact on the supply chain. Therefore, the basic rule in forecasting, procurement and inventory management is that everything that can be planned and complies with the rules is automatically forecasted and planned, but that the effects and interactions of many unplannable events require the know-how of experienced experts. Clever software systems, such as those from ifm, combine both.
The range of coverage matrix
In addition to the ABC/XYZ analysis, there is another central matrix in the inventory management software. The range of coverage matrix shows exactly the corridor in which your stock levels should be. Red indicates the shortage, and yellow means overstock. Neither of these are desirable conditions because they hurt liquidity, costs and customer relations and, in the worst case, bring production to a standstill.
The better the parameters are set, the more sustainable savings can be made in inventory management, while at the same time safeguarding the supply situation.
Countering chaos in the supply chain
The last few years have shown how intricate the supply chain network is. Serious problems have often developed overnight and have to be recognised and solved at short notice. However, the range of coverage matrix works with planned values that are stored in the master data. What is currently needed is a speedboat that can immediately take up a new course and step on the gas. Such a tool is the replenishment lead time monitor. With this solution, delivery horizons can be tracked daily.
Replenishment lead time monitor
In the replenishment lead time monitor, current replenishment lead times, which result from the key date data of purchase order and delivery, are compared with planned replenishment lead times. Deviations are systematically identified and automatically highlighted in colour: yellow for early delivery and red for delay. In this way, the person in charge can see at a glance which material requires urgent action. With one click, the scheduler jumps to master data maintenance and adjusts his replenishment lead time. Company-specific rules and regulations ensure that the safety stocks and reorder points are automatically adjusted.
Master data: The golden raspberry in the system
Nobody likes to take care of it and yet everyone knows about its relevance. All statements, analyses, sets of rules, key figures and proposals are based on master data. If these are insufficiently maintained, there is no reliable control of the supply chain, especially inventory management.
To quickly and easily bring the quality to a top level and to keep it there, there is a mass master data maintenance in ifm's controlling solution and many more facilitations:
Display of the consumption development at an individual material level over time to recognise changes in the behaviour of the material.
Easy jump to the associated MRP parameters to make the necessary changes there.
Automatic calculation of default values for delivery level and safety stock.
The authorized/actual comparison is based on different MRP parameters.
One-click on the offer and the parameters are optimised.
Simulation: Graphical comparison of the stock development based on different MRP parameters.
More transparency through graphic visualisation
The faster the current status is recognised and the need for action is seen, the better and more stress-free the processes run.
An essential part of the inventory management solution from ifm is therefore the graphic presentation of the subjects: See at a glance where the shoe pinches – or not.
A reliable alert system and the allocation of roles do the rest because no to-do is overlooked and useless information waste does not prevent the view of the essential.
No getting bogged down, no wrong decisions. In this way, even unplannable materials can be brought under control.
We have thought your questions ahead
How do I identify dead stock?
With ifm's controlling this is done very quickly! Simply display the stock development at an individual material level over an appropriate period (we recommend at least 100 days). Important: If you handle a large number of materials in individual MRP areas, you should limit the display to material groups for greater clarity.
How do I identify slow-moving items?
Have the turnover rate of your warehouse shown on an anonymous finished goods level. If you work with semi-finished products that are prefabricated for rapid production, you can of course also select according to this.
How do I optimise my safety stock?
A safety stock that is too high is often a purely precautionary measure. However, if too high a buffer is included at every stage of production, this leads to an unnecessary reduction in liquidity or even to great economic damage. Thanks to the classification matrix of the ifm software you can easily identify over- and understocks! With one click on the number of materials in the border area, all individual materials to be optimised are displayed.
First steps in using the inventory management solution from ifm
Are you curious and would like to learn more about the controlling solution?
Then we invite you to a 20-minute webcast for newcomers with our colleague Sven Daniel Heck, Senior Consultant of Inventory Management and Procurement.
All new features in inventory management at a glance
You are already using the controlling solution, but are wondering what innovations the current release offers.
Then our colleague Tim Kolb, Software Developer Inventory Management, will happily introduce you to the new functions.
Or would you rather talk to us?
