Can you calculate uncertainties in demand, can you also act on it!
"No one has claimed that inventory optimization is easy. When you think you have a handle on trends and tendencies, something happens that turns everything upside down. Some warehouse shelves are emptied, others become overcrowded. Many companies have had to learn the hard way that the methods they have for calculations are not as reliable as they thought". So said Pär Heed at the company Systemstöd in an introduction to the webinar "How you can manage uncertainty in your inventory planning", which Promosoft arranged in 2021.
In our blog, we have previously written about how automatically calculated forecasts with Promosoft's system SOLO enable flexible safety stocks even in the event of strong demand variations. Pär Heed emphasized that SOLO fulfills an important function in companies where storage and distribution are "core business".
"We collaborate with Promosoft as we have customers with large product flows who need a supplement to their business systems. You need it to be able to manage your inventory control and inventory optimization even better. Promosoft has ready bridges to many business systems and you get an automated flow between SOLO and the business systems. SOLO imports information from the business systems, but also delivers information back”.
Is it possible to calculate uncertainty?
A business system and SOLO are thus synchronized, and the big difference compared to companies that work with trying to synchronize their business systems with Excel routines is the automation. SOLO continuously calculates, for example, order points and optimal stock levels. For companies with large product flows, there is always a certain degree of uncertainty and often a number of challenges. This may apply, for example, to difficulties in assessing demand, maintaining desired service levels and, of course, also optimal stock levels with the smallest possible capital tie-up.
How can uncertainty in demand be managed? Is it possible to calculate uncertainty? Yes, it works with SOLO and it also creates opportunities for companies to "act on the uncertainty!". In this blog we will look at two uncertainty factors: Fluctuations in demand and difficulty in setting the desired service level.
SOLO captures variations and highlights the problems
Many industries have been hit by major challenges and fluctuations in demand over the past three years. Component shortages, supply chains that are in trouble, increased fuel prices, rising raw material prices and consumers who prefer other purchasing options than e-commerce. For many companies, this means that they are well aware that there is an uncertainty in demand, but also that it is difficult to calculate this uncertainty.
In purchasing departments where Excel is used as a work tool, you might try to set a general rule for many articles, and then calculate a safety stock that should last a certain amount of time. The problem is that this does not provide any opportunities to keep track of which articles fluctuate a lot and which do not, and thus it is also not possible to build up multiple and "demand-driven" security stocks at the article level.
Promosoft has customers who had a dramatically reduced demand for certain items during the pandemic, but also dramatic increases in other parts of the range. With a system like SOLO, it is possible to capture these variations. Increases in demand are handled well by the system, and for items with greatly reduced demand, SOLO illuminates the problem. SOLO does not solve the problem automatically, but it makes it much easier for the purchasing department to act! In short: It becomes easier to manage the uncertainty and decide how many items to keep in stock.
SOLO differentiates the service levels
Many of Promosoft's customers have a pronounced service strategy. A general target may be set, let's say 80%, but for buyers who do not have access to a system like SOLO, it is difficult to know how to act to achieve the target. With Excel, it is indeed possible to make variants where you specify that there should be articles for a certain number of days in stock, but it is seldom that it is completely correct. With SOLO, it becomes significantly easier to act and sharpen a flexible service strategy.
It is, for example, possible to differentiate the service levels and set one level for product groups with high-frequency items, and a completely different level for less-demanded items. What SOLO does is take into account uncertainties in variation and demand, and the system also weighs forecasts. SOLO can then calculate a certain volume for an article or product group, and then set a desired service level. The system also dimensions the stock levels dynamically.
In an upcoming blog text, we will address a couple more challenges and uncertainties for many companies;
How do we lower the inventory value to reduce the capital tie-up, while maintaining a desired service level ? We will grow rapidly in the next few years. How much do we have to scale up the purchasing department if the business is scaled up significantly?
While waiting for that blog text, a tip is to go in and watch last year's webinar; "So you can manage uncertainty in your inventory planning". Available on Promosoft's YouTube page https://youtu.be/UI-DM2gl9k0 .