In many companies, analysing inventory is a problem that should not be a problem because of the possibilities offered by current technology. In this article, I want to elaborate on the important role of analysis in inventory management based on my experiences and knowledge gained during projects.
In most cases, the company is gradually moving towards a less favourable situation away from the possibly best situation in terms of inventory management. This best situation was once defined and determined by implementing an inventory management system. Because the procedures set up fade over time, market demand evolves and the system is not regularly adjusted accordingly, most companies perform below their own defined level in terms of their inventory management. In addition, more efficient systems have usually been developed over time, bringing the potential for improvement not infrequently to 20 to 30 per cent inventory reduction with an increased service level.
And yet a lot of companies struggle with analysing data related to inventory. One has a lot of data available in the ERP systems but apparently fails to link this data with each other or perform the necessary analyses with this data. In some cases, one starts processing this data in Excel sheets with lots of formulas. Another problem within Excel sheets is that companies have a large number of item numbers (SKUs). Trading companies and manufacturing companies often deal with thousands or tens of thousands of item numbers. It is physically impossible to look at and analyse all these article numbers equally well.
Using existing data, a lot can be deduced about the inventory situation within an organisation. By using a Multi-dimensional ABC analysis(Pareto analysis), one can fairly quickly arrive at a correct evaluation of the stock situation. Why not a traditional ABC analysis? Because, for example, new products or products without movements all end up in the C category, which doesn't really say anything. That's why we use the Multi-dimensional ABC analysis in our projects, where you can set different parameters against each other and so one can go up to 9 dimensions to use this in different types of stock analysis.
An analysis frequently used by us compares the importance with item rotation or coverage. For each item, the number of days of stock (coverage ratio) is determined and this is measured against its importance to the business. This allows one to see in two clicks or views within stock optimisation tools how stock is doing. Or even better: what will the stock situation of my products be in six months' time? Based on this, the company can anticipate and avoid overstocking of certain products. These analyses can be used not only in stock management, but also within sales, production or during the S&OP process. These analyses should also be further translated into an inventory strategy or review of the inventory strategy.
Gunther Fonteyne - partner at Xeleos Consulting and Optimact
Stay up to date
Sign up now for the LogistiekProfs newsletter and receive the latest news, trends and offers.
