2021 is set to be another tough year for inventory planning teams. COVID-19, Brexit, geopolitical and environmental threats will continue to impact supply chains across the globe, whilst, at the same time, customer demand will remain as erratic and complex as ever.
Stock managers, planners and purchasers are well and truly in the spotlight, as they play crucial roles in ensuring business continuity. When planning for 2021, there is a lot they need to consider so as the shelves remain stocked and market opportunities are taken advantage of.
Here are six factors that every SCM professional should be thinking about right now.
Forecasting erratic demand
When it comes to demand forecasting, simply copying last year’s numbers or using a 30-day moving average is not going to cut it in 2021. Whilst this can work when there is steady, predictable demand for goods, right now these methods will be entirely inadequate. Instead inventory planners need to consider introducing statistical forecasting methods to calculate their base demand. They should then focus on:
Tracking demand trends on a daily basis and adjusting forecasts and purchasing to match market behaviour. With demand changing daily, anyone using spreadsheets to manually forecast will find this a challenge. Using a demand forecasting tool could, therefore, be a great investment, as it will automatically review demand trends daily and dynamically update forecasts to reflect the marketplace. With up-to-date forecasts, businesses can then react quicker to fluctuating demand, helping prevent stockouts and lost sales.
Adding qualitative data to base forecasts to make them as realistic as possible. With the market so unstable, insights from sales teams, customers and industry bodies can be invaluable sources of information that can be used to adjust statistical base forecasts accordingly.
Tracking actual demand against the forecast throughout the forecast period. When it deviates significantly from its projection, the cause can be investigated, and, if necessary, reordering can be modified to help prevent consequential stockouts or stock surpluses.
Identifying and prioritising critical stock
COVID-19 has made it extremely challenging to achieve order fulfilment targets (or service levels) across entire product ranges. The impact of Brexit could heighten this issue.
At the same time, many businesses will have cashflow challenges right now, so it is essential to invest in stock that will generate revenue and not sit in the warehouse.
Inventory classification will help organisations identify stock items that are business-critical and prioritise their management to help ensure availability.
One way to do this is to use a simple ABC stock classification model, where inventory items are grouped based on their value to the business, e.g A items being the most valuable and C items the least. Different stocking rules can then be set for each category to help prioritise the availability of category A’s, over B’s, and then C’s.
Whilst some ERP systems offer ABC classification functionality, the categories have to be set and updated manually, meaning they are quickly out-of-date. A more sophisticated option is to connect an inventory optimisation tool to the ERP. This software automatically classifies inventory based on a range of variables, including the cost of goods sold, pick frequency, demand volume and demand volatility. Service levels and stocking rules are then automatically set and dynamically updated on a daily basis, as these variables change.
Centralising inventory management
At a time when cash is a precious commodity for most organisations, optimising stock levels across all warehouses and stock locations is an obvious way to release working capital. To do this, inventory planners need to forecast and replenish inventory with one centralised view.
Technology such as warehouse management systems, order picking scanners and Radio Frequency Identification (RFID) can help by providing real-time data on stock levels at each location. At the same time forecasting and reordering calculations need to be based on up-to-date demand data. With a view of stock levels across all branches, inventory can be balanced out, so excess stock at one location can be redistributed to other sites to help alleviate supply pressures and stockouts.
The critical role of safety stock
Safety stock levels are a crucial way to mitigate the risk of stockouts due to sudden peaks in demand, supplier disruptions or other unforeseen events.
During times of uncertainty it makes sense to increase safety stock levels, but this can only be done when the cash is available. Plus, businesses don’t want to be left with excess stock when demand subsides. Safety stock levels should, therefore, be set and regularly adjusted based on demand forecasting confidence, target service levels and projected supplier lead times.
Managing supplier lead times
Unfortunately, since the coronavirus pandemic took hold, supplier lead times have caused huge disruption for manufacturers, suppliers and retailers alike. Going forward, having increased levels of communication with suppliers will help inform safety stock and reordering calculations. In addition, it could be wise to remove any dependency on one supplier and create relationships with more local vendors.
Finally, automation again offers a means of dealing with lead time uncertainty. A good inventory optimisation tool will dynamically track supplier lead times and adjust safety stock levels and reorder points automatically, to alleviate the impact of delays.
Investing in automation
To respond effectively to the supply chain challenges ahead in 2021, inventory management teams need to be focused on managing customer expectations, dealing with fluctuating demand and solving supply disruption. Digitalising the supply chain is critical for this to happen.
Whilst it may seem like a crazy idea to implement new tools or systems with so much going on, technology will speed-up processes, remove simple, manual tasks, improve data transparency and inform decision making.
The coronavirus pandemic is unlikely to be the last supply chain challenge that businesses have to face. A post-Brexit era is on the horizon and global political & economic instability is increasingly becoming the ‘norm’. Having efficient processes and systems in place to alleviate the impact of such issues is, therefore, key to business continuity.
Want to know more: www.eazystock.co.uk
ABOUT EAZYSTOCK
EazyStock is a market-leading inventory optimisation tool that gives businesses total control of their inventory, by increasing their service levels, reducing inventory costs and automating ordering processes.
The cloud-based software integrates seamlessly with ERP systems and delivers fast, measurable results. EazyStock is part of Syncron International AB, with headquarters in Stockholm and customers all over the world.
For more information, please contact:
Tracey Baker
Marketing Manager – UK
T: +44 7500 049098