The Delicate Balance Between Supply, Demand, And Inventory Control

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Today’s manufacturers and distributors must be agile and able to respond quickly in the event of a supply chain disruption.  They must also be flexible and able to view the supply chain and inventory management strategically.  Looking at your supply chain and inventory in a new way can make you more resilient to inevitable fluctuations while maintaining the ability to satisfy customers.

Businesses often maintain a level of safety stock in the warehouse in order to reduce the chance for stock-outs.  However, not all inventory items carry the same weight or value and you may end up storing more inventory than is really necessary.  Maintaining excess inventory ties up cash that may be better spent in other parts of your business and introduces the risk for getting stuck with items that may become obsolete.  As discussed in “Six Steps to Effective Inventory Management,” a complimentary white paper, a solid understanding of the balance between supply and demand, combined with characterizing your inventory, is a good first step toward more efficient inventory management.

In order to understand customer demand, you need to get to know your customers and trending inventory as well as implement a forecasting process.  Using a robust business management solution, such as Demand Manager, will make it easier to distinguish between slow- and fast-moving inventory; customers that need replenishment within weeks versus months; and the difference between standard inventory, intermittent items, and random occurrences.  Distinguishing between these different types of inventory and customer needs can provide insight as to which safety stock to maintain and their respective ideal quantities.  This inventory method can reduce your inventory by nearly 30% as compared to blanket safety stocking strategies.

After you have an idea of what inventory to buy, the next question to ask is when.  You may not necessarily want to order certain items when the bins get low.  Your procurement team should consider freight costs, price breaks for bulk orders, and costs behind storing excess inventory.  Each purchasing decision should be made considering these variables with the goal of keeping supply in sync with demand.

There are other methods and considerations to maintaining efficient, profitable levels of inventory.  Download “Six Steps to Effective Inventory Management,” and contact RockySoft to discuss how to stock your warehouse with the right inventory, at the right time, that can satisfy customer needs and your bottom line.

By Jeffrey Porter with RockySoft, Microsoft Dynamics software provider for demand planning

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