Effective Inventory Management

Lifeblood Of A Good Merchandising Business

There are many key functionalities for evaluating effective inventory management. "Because of their complexity and breath, it's easy to get bogged down in the process of defining software requirements and selecting vendors for inventory management systems," concedes AMR Research.

His research, however, shows how distribution companies, for one, can derive benefit from these systems with a relatively short list of core functionalities that can be considered when evaluating alternatives. IRR has excerpted his findings, and present some of them in a table) of the short-list of enterprise applications identified by Girard.

He notes in his report some supply chain planning vendors (Manugistics and Logility) offer inventory management systems "within a broader framework of supply chain capabilities." Also, some supply chain execution vendors (Endura) are bringing "robust inventory management systems to market."

Parameters inventory management systems must satisfy. According to Girard, "The value of inventory management systems increases with the ability to apply statistical, economic, and trading partner business rules at the level of item location." To achieve this type of increase, he recommends inventory managers seek software solutions that can do the following:

* Scale the application of scientific inventory management techniques (statistical safety stock, economic order quantity) to review fairly high volumes of granular item-location replenishment and redeployment decisions in short (daily or weekly) cycles;

* Automate routine replenishment and redeployment decisions;

* Comprehend the full costs of acquiring, carrying, (re-)deploying, and disposing of inventory;

* Manage inventory by safety, cycle, build, and investment classes for each item location in the network;

* Manage inventory allocation decisions based on economic value of inventory reflecting gross margins and turns;

* Map inventory policy by item location to channels and customers with common service expectations;

* Adjust parameters that control item-location replenishment and deployment decisions quickly by the following:

* shortening the item-location control review cycle

* identifying significant seasonal, promotional, and life-cycle changes in demand to adjust forecast in the next review cycle

* identifying variances in supply lead times and fill rates to adjust safety stock in the next review cycle;

* Identify potential inventory excesses and shortages at item locations and redeployment network inventory to minimize revenue lost from stock outs and product obsolescence, considering transportation and the handling cost of redeployment and product substitution opportunities;

* Manage replenishment decisions to get the most out of the following:

* Suppliers' trade promotion programs and forward-buying opportunities

* Lot size economies of suppliers, manufacturing, transportation, and warehousing;

* Manage item-location inventory through product life cycles, adjusting replenishment and redeployment control parameters from new product introduction, through maturity, and into obsolescence;

* Manage product-to-product substitution and product reuse opportunities; and

* Manage aging inventory against shelf-life constraints.

Inventory Management