Many computer software packages today rave about their advanced forecasting and replenishment capabilities. If these systems are so good, why do so many buyers still make all of their replenishment decisions by “S.W.G.” (Scientific Wild Guessing)? We have identified four reasons:
- The forecasting/replenishment capabilities of the implemented system do not address the situations found in the client’s data and/or business environment
- Though the system has the necessary capabilities, the entered parameters and settings are not appropriate for the client’s unique situation
- The client’s buyers and inventory planners have not been adequately trained on how to effectively use the system
- The software company does not have properly trained personnel to support the system
A “best practice” inventory/replenishment package should manage your inventory “by exception”. That is, the vast majority (85-90%) of purchasing decisions should automatically be made by the system. These decisions should reflect your best buyers’ thought process.
A “best practice” system will bring to a buyer’s attention specific items that need his/her attention. These are typically products that are experiencing unusual usage or have recent stock receipts whose delivery significantly differs from the item’s current anticipated lead time. Buyers can use both their industry knowledge and valuable time to manage these atypical situations. In most cases, no more than 10% to 15% of an organization’s stocked items should identified as “exceptions” each month. If more of your stocked products require manual review you are probably using inadequate software, it is incorrectly set up or your buyers need additional training in the system’s proper use.
How can you be sure that you are using the right software, it is set up correctly and your buyers know how to master its capabilities? Let’s begin with purchasing the right software:
- Analyze your needs before you shop for software. Every company has a unique inventory environment. There is no such thing as “one size fits all” in best practice inventory management. Determine all of the elements that need to be considered in accurately predicting future demand of products. These may include seasonality, trends, sporadic demand, promotions, imports, superseding products and other factors. Using a representative cross section of products, determine the optimum replenishment parameters that will balance your desired level of customer service and inventory investment. EIM can help you if you have trouble completing this process.
- Have each software company show you how they can reproduce your optimum parameters or even better results.
Note: Be sure that software companies you are interviewing use your data in every demonstration of their system. Include (in the data you provide to them) products that your buyers find difficult to handle.
It amazes me how many companies will implement a new system without first performing a detailed analysis of their current inventory to determine the specific capabilities and training they need to achieve the goal of effective inventory management. This is the equivalent of a doctor prescribing medication and treatments before performing any diagnostic tests. Neither will result in good health; either for your body or your inventory!
Next month, we will examine how you can be sure that your software is set up correctly and your buyers know how to master its capabilities.