Automate Processes for Better Inventory Forecasting

“What decisions can technology manage better than humans?” should be the question that drives your internal operational process. For example, is there a way to automate internally transferring inventory already in your supply chain to locations in need? What about building orders to supplier minimums or logistics constraints? Can allocation of insufficient quantities be taken off a user’s plate? What's the best way to handle all this advanced stuff?

You might be able to accomplish quite a lot more with the team you have in place and avoid the need to hire data analysts or additional team headcount. With the technology available today, companies are transferring a host of previously manual and labor-intensive tasks to automated processes. Automating these core and complex tasks eliminates imprecise manual processes that currently absorb much of your team’s time.

Getting more out of your team means freeing up people to do what they’re better equipped to do — i.e., more intuitive and strategic tasks that affect a company’s bottom line.

Start With Your Goals and Work Backwards

The state of most companies’ current supply chain planning is similar to the days of driving to your destination by navigating with a road map. You know where you want to go, but you're determining on your own how to get there step by step. The process is imprecise, labor intensive and generally sub-optimal.

Think about it. You have goals for sales, cash, costs and service, but you have to figure out all the turns and routes in order to drive your inventory investment to reach those goals. With that approach, the course is usually a meandering one at best.

A better way would be to input your destination, what time you want to get there, how you want to get there (highways/roads), and an output provides you the optimal route, considering your inputs and other real-time constraints such as traffic, road closures, etc.

The latter approach is now a reality for supply chain. You simply provide your goals — service, cash flow, costs, inventory levels — and out comes an economically optimized demand and supply plan considering your goals, future sales, and all relevant constraints related to the moving, supply and ordering of goods in your supply chain. All you have to do from there is execute action-ready recommendations and manage by exception.

The overall approach can be broken down into three basic phases:

1. Demand Data to Forecast: Based on analyzing every customer transaction, creating causal and other key demand segments, create a highly accurate forecast for every SKU, location and channel across the business.
2. Forecast to Inventory Order Plan: Taking into consideration your organizational goals and every relevant detail of your supply chain constraints (MOQ’s, ordering schedules, stock status, supplier capacity, lead time variability, etc.), translate the demand forecast into a precise, realistic (not theoretical) and economically optimized inventory ordering plan to meet demand as far as 365 days in advance. Update the plan daily to reflect any potential changes in supply chain conditions, demand, etc.
3. Plan to Action-Ready Recommendations: The necessary tasks for executing and managing the plan is presented to users in the form of action-ready recommendations. Daily tasks are guided, simplified and prioritized. Orders due for service, exceptions, order and item alerts, key performance indicators (e.g., forecast accuracy), and other recommended actions are automatically calculated and made available and apparent to users.

To stay ahead of demand, your competition and be profitable, steps one and two should be completely automated.

What happens if you can automate all that?

Suppose all the above is true and you could automate all the imprecise, manual drudgery that your team is currently bogged down with. You might be wondering just then what do you need a team for. The answer is to drive even more sales and increase profit.

Beyond executing recommended actions in the forecasting and planning process and managing exceptions, your team will have time to become significant drivers of both profit and sales for your business.

Here are a few key tasks your team might not be spending enough — or any — time on today:

• vendor negotiating, deal buying or forward buying to improve profitability;
• collaborating with suppliers to drive improved fill-rate performance;
• simulating "what if" scenarios such as ordering on different schedules or implementing new service goals;
• collaborating internally with merchandise or category managers on promotions;
• communicating cost and effects of service-level strategy and other organization goals;
• reacting on time to trends and events; and
• sharing precise, predictive demand forecast data to inform sales and merchandising initiatives.

The effect of taking away what in the past has been highly manual and ultimately imprecise calculating forced upon purchasers and planners is nothing short of transformational for organizations.

This fundamentally changes the way purchasers and planners do their jobs. They're no longer a team whose sole purpose is to take orders from the sales team or fill slots on store or warehouse shelves. Your inventory planning and purchasing team will become inventory investors — owners of their own sub-business within the organization driven to increase the sales and profitability of the inventory portfolio.

Rod Daugherty is the vice president of product strategy for Blue Ridge, a supply chain planning and demand forecasting company. Rod can be reached at rod.daugherty@blueridgeglobal.com.