By now we’ve all heard that inventory is an organization’s largest overall investment. Inventory can either be an organization’s biggest asset or its biggest headache – the difference between the two is in the planning. Over the last few years, supply and demand volatility, supply chain disruptions and economic changes have made it difficult for organizations to have the right inventory in the right place at the right time to meet customer service level agreements. According to a CNBC supply chain survey, 23% of logistics managers surveyed do not know when to expect inventory levels to return to normal. Amid this uncertainty, what can supply chain leaders do to maintain optimized inventory?
Strategies such as demand forecasting and planning, inventory optimization techniques, supply chain network design and technology implementations are tried and true for inventory optimization. Inventory Forecasting and Planning as a Service (IFPaaS) combines these strategies for a service that boosts customer service and reduces inventory cost.
What is IFPaaS?
Inventory forecasting and planning as a service combines several strategies that align an organization’s inventory with its customer and business needs. IFPaaS is the best way for an organization to not only enhance its customer service but also reduce inventory cost. IFPaaS includes several strategies that are employed in tandem to fully optimize inventory across the entire supply chain. These include:
- Sales & operations planning
- Demand forecasting analysis
- Dynamic inventory allocation
- Inventory modelling
- SKU profiling
- Continuous improvement
- And more
By leveraging inventory forecasting and planning as a service, an organization gets access to all of the tools and strategies needed to boost customer service and cut inventory costs. This article will share ways that IFPaaS can help supply chain leaders achieve each of those goals.
Boosting Customer Service with PaaS
An organization’s inventory is inextricably linked with its customer experience. If a customer’s order cannot be fulfilled due to insufficient inventory, that customer is less likely to return. If this happens regularly, profitability can be impacted. Inventory forecasting and planning as a service is critical for avoiding situations like these and ensuring that the customer is consistently able to get the products they want when they want them. There are many ways that IFPaaS can help boost your organization’s customer experience, a couple of which being improved demand forecasting and planning and inventory management.
Improved demand forecasting
Demand forecasting leverages historical data, trends and AI to predict future customer demand for your product. Effective demand forecasting is the key to solving today's inventory challenges caused by demand fluctuation. Efficient demand forecasting should be visible on a real-time basis, allowing your organization to consistently have a pulse on your customers’ wants and needs. It is not until you accurately forecast demand and truly understand your customer that you can start to strategize on how to meet that demand.
By having reliable forecasts, your organization can optimize resource allocation to improve customer service levels and gain a competitive advantage in the market.
Improved inventory planning and management
Inventory planning and management are the strategic and operational activities aimed at effectively and efficiently managing your organization’s inventory levels. Inventory planning and management decisions must come after demand forecasting, because they are made as a result of understanding what products your customers want and need.
The planning aspect of IFPaaS will ensure that your organization has the right amount of inventory in the right places to meet customer needs. It will also optimize those inventory levels to reduce excess inventory or stockouts. Ultimately, having the right amount of inventory in the right places from in-depth planning will decrease the likelihood of a customer’s order not being fulfilled and drastically increase the customer experience.
Cutting Inventory Costs with IFPaaS
According to a CNBC supply chain study, 48% of logistics managers surveyed are facing warehouse costs as their biggest inflationary pressure in inventory management. Inventory is one of the costliest aspects of the supply chain, and it is only getting more expensive, as the CSCMP 2022 State of Logistics Report found that inventory carrying costs increased by 25.9% in 2021. IFPaaS strategies are pivotal for optimizing inventory in your supply chain to reduce the financial strain on your organization.
Optimized inventory placement
Where you put your inventory is just as important as what kind of inventory you purchase and how much. IFPaaS helps organizations take control of the nuances in play when determining where to place inventory. Several factors will impact supply chain leaders’ inventory placement decisions.
- Customer demand and service level expectations: Where are your customers? Are they located across multiple regions with varying demand patterns? What are the required service level agreements and what is the cost to achieve them? These questions will help determine how to place inventory in proximity to your customers.
- Transportation efficiency: Consider what the cost of transportation will be to get the product from source to the customer. This could mean placing inventory closer to demand centers to optimize transportation.
- Seasonal demands: Demand changes throughout the season, so make sure to take this into account when placing demand throughout your network.
- Risk mitigation: Unforeseen circumstances arise frequently in the supply chain, such as weather challenges, supplier issues or political instability. Create backup plans when placing inventory to ensure your supply chain can still deliver on its customer promise amid disruption.
All of these considerations will impact the amount that your inventory costs your organization, from avoiding excess inventory to optimizing transportation routes to reduce those costs.
Optimal inventory levels
Excess inventory is one of the biggest drains on an organization’s cash flow. IFPaaS’ processes of demand forecasting and inventory placement optimizations are both ways of ensuring that the right amount of inventory is in the right place to meet customer needs. Too much inventory will incur unnecessary holding costs, while not enough inventory will lead to costly last-minute sourcing.
Inventory forecasting and planning is one of the best things an organization can do for itself to increase the value of its inventory. The forecasting and planning tactics shared in this article can be leveraged by organizations of any size to improve customer service and reduce costs across the supply chain.
Nate Rosier is SVP, Consulting Group Leader, enVista.