Ideally well balanced: Inventory management
"Stock-taking" after the pandemic
How would inventory managers, supply chain managers or logistics managers describe the route they travelled during the pandemic? Probably none of them would think of a grand boulevard or a quiet residential street; much more likely a slalom course, a white-water ride or a city with millions of inhabitants at rush hour. There was always something (or a lot) that was not available: containers, semiconductors, plastics, packaging, ... There were many reasons for this, and the lockdowns caused by the coronavirus were not always to blame. Prices went crazy, and some electronic components (essential for many machines and cars) were only available on the grey market at best. As a result, companies ordered many times more than they needed in the hope of actually receiving a fraction of the orders – with the result that far too much was delivered when the bottlenecks were finally eliminated. Some of the goods, raw materials, supplies and auxiliary materials are still piling up in warehouses today, taking up a lot of space, tying up capital and possibly spoiling.
By: Gerald Scheffels for ifm
Lessons learnt from the wild ride
Not everything is good now, but a lot is better – and the question arises as to what has been learnt from the lurch between understocking and overstocking. Specifically: How can inventory management be optimised? How can you always be able to deliver without having too much in stock? How to avoid dead stock and slow-moving items? How it is possible to reduce storage costs?
These questions also demand answers urgently and more than ever because – to put it simply – the (procurement) situation is unlikely to improve. This is because the worlds of procurement and inventory management always reflect the state of the world as a whole, and this is likely to become even more confusing.
There are also trends in the individual markets that require even more careful planning:
The competitive and cost pressure is unlikely to decrease.
In the consumer goods markets, customer requirements are changing ever more rapidly (driven by social media, among other things).
Product variance is increasing in many markets.
Special sizes and packaging as well as marketing campaigns also increase the variety and the necessary adaptability in the stocks.
Last but not least, as the pandemic and the wars in Ukraine and the Middle East clearly show, global politics are also having an impact on companies' inventories. In response, many supply chain managers are turning to decoupling, nearshoring or insourcing. However, hardly any industrially manufactured product can do without starting materials or raw materials from all over the world. The global situation can hardly be ignored.
Objective: To plan and manage the portfolio in line with demand
So how can stocks be ideally balanced under these conditions? With foresight, with data and figures – and with the right software. For this task, ifm has developed an SAP-based solution that controls inventory management.
One of the aims of the development was to create a user-friendly solution that manages with as few meaningful input parameters as possible. This goal was achieved. Among the numerous KPIs for logistics and stock, there are three that are known to be good for managing stock: the reorder point, the stock level and the safety stock.
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Reorder point
This parameter is calculated as follows: (daily consumption x delivery time in days) + safety stock = reorder level |
Stock level
The stock level is calculated as follows: Øinventory = 360 days * Øinventory/yearly consumption |
Safety stock
The corresponding formula is: 1/3 * consumption in the replacement period = safety stock |
Everything at a glance and always up-to-date
“Supply Chain Excellence for Inventory Management" from ifm records these parameters – but not only that. The tool compares the parameters, recognises trends and shows the user simply and reliably where action is required. It thus acts as an "early detection system" for disruptions in the supply chain and allows timely countermeasures to be taken.
Some of this can also be done with the SAP standard, but only with very high manual effort. The software solution developed by ifm, on the other hand, offers the user the option of jumping straight to the details via a central dashboard. As the information comes directly from the SAP system, there is no need to work with Excel lists and – just as important for most users – the data is always up-to-date. One of the many additional functions and options offered by the dashboard is the ability to switch directly between value and item. This helps to identify optimisation potential.
Conclusion: A good tool for a quick overview
With these three KPIs and the additional functions that ifm's SAP-native inventory management software provides conveniently and up-to-date, inventory managers are already well equipped to gain an overview of inventory management and also to look ahead to plan inventories in line with demand and take external influences into account.
Thinking too short?
If you're now wondering, because all three key figures only analyse quantities and that's not enough for successful inventory management, the answer is: "That's right." That's why, in our next inventory blog post, we'll be reporting on how you can look to the future with a graphical ABC/XYZ analysis, a range of coverage matrix and the replenishment lead time monitor. These tools are available with the controlling solution from ifm.
But the three KPIs described here already offer the inventory manager – to stay with the image of car traffic – crash barriers or traffic signs for rough stretches of road in inventory management.
Find out in part two how inventory management becomes an all-round comfortable journey. Stay tuned!
