Demand Planning and Inventory Optimisation

September 11, 2023

How carefully chosen demand planning and inventory optimisation system parameters and targets, can significantly bolster both profitability and customer satisfaction.

In the intricate maze of supply chain and logistics, navigating the realms of demand planning and inventory optimisation can often feel overwhelming. Yet, a strategic approach, informed by carefully chosen system parameters and targets, can significantly bolster both profitability and customer satisfaction.

1. The Art and Science of Demand Planning

At its core, Demand Planning isn't merely crunching numbers; it’s about foresight - predicting market dynamics and customer inclinations. Take a toy manufacturer as an example: By foreseeing a surge in demand during the festive Christmas season, they can upscale production in advance, avoiding potential stock-outs.

Key Considerations:

  • Forecast Period: A seasonal product, like swimwear, demands varying forecast rhythms – monthly during summer peaks and quarterly during quieter times.
  • Forecast Method: Stable demand products might fit the moving average model. In contrast, unpredictable items, with their ebbs and flows, may better align with exponential smoothing.

Demand Planning isn't just a matter of numbers but requires an intricate understanding of market dynamics, technological shifts, consumer sentiment, and geopolitical contexts. For example, Apple’s iPhone release strategies reflect more than just product readiness; they encapsulate global market sentiment, competition, and technological evolutions.

Deep Dives:

  • Macro Trends Analysis: Understanding the rise of green consumerism can determine the trajectories of companies producing sustainable vs. non-sustainable products.
  • Cannibalization Rates: For brands with diverse product line-ups, predicting how a new product might impact the sales of existing ones becomes crucial.
  • Predictive Analytics & Demand Sensing: Companies, akin to Netflix, harness algorithms that leverage historical data to anticipate future demand, allowing swift adjustments to market shifts.

2. Inventory Optimisation: Striking the Right Balance

Visualise a bustling local bakery. Overstocking risks waste due to perishable items, while understocking might mean turning away customers craving their favourite pastry.

Setting the Scales:

  • Service Level Targets: A high-end watch store, with its luxury clientele, might target a 98% service level. Yet, a local grocery might be content with 90%, factoring in the occasional stock-out of non-essentials.
  • Stock Turnover Rate: Fashion-forward boutiques, keen to refresh their summer offerings, will seek high turnover rates during the season.

Global brands like Tesla don't only count inventory. They're strategising around geopolitics, tariffs, regional promotions, and technological advancements.

Sharper Focus:

  • Multi-Echelon Inventory Systems & JIT: While multi-echelon systems holistically consider inventory at all locations, JIT methodologies aim to perfect timing, reducing lead times and holding costs.
  • ABC/XYZ Analysis & Service-Differentiated Approach: High-value yet unpredictable items might require different handling from steady, low-demand products. Similarly, life-saving drugs demand near-perfect availability, unlike seasonal items.

3. Tailoring System Parameters for Demand Planning

The umbrella, a seemingly simple product, exemplifies the nuances of planning. Even in predominantly dry spells, retailers will maintain a modest stock – because who can truly predict a sudden downpour?

Advanced Adjustments:

  • Safety Stock Levels: Predicting the unpredictable, like the occasional rain during a dry spell, necessitates having safety stocks.
  • Lead Time: Compare a remote artisan crafting handmade goods to a local book distributor. The former's unique offerings will inherently come with elongated lead times.

From anticipating viewer preferences, like Netflix, to real-time adjustments using IoT, modern challenges demand modern solutions.

Innovative Leaps:

  • Segmentation & IoT in Inventory: Segmenting products based on demand variability can lead to custom strategies, while IoT-enabled smart shelves in retail can streamline stock management.
  • Machine Learning Models & Economic Order Quantity (EOQ): Machine learning refines forecasts by learning from past data patterns, and EOQ identifies the ideal order quantity for minimum costs.

4. Setting Precise Targets in Inventory Optimisation

From the crisp freshness of a salad to the timelessness of literature, different businesses have varied inventory rhythms.

Critical Calibrations:

  • Order Cycle Time: A bistro priding itself on freshness will likely have daily sourcing cycles. Conversely, a serene bookstore might restock on a more leisurely weekly or monthly cadence.
  • Minimum Order Quantity (MOQ): The boutique charm of custom furniture might come with a stipulation of at least 10 pieces, while a bulk fabric dealer could easily set their sights on a 500-meter MOQ.

The meteoric rise of companies like Tesla isn't solely due to product innovation but also stems from mastering demand prediction and inventory flow through advanced AI.

Innovative Leaps:

  • IoT (Internet of Things) in Inventory: Smart shelves in retail can notify when stock is low, integrating seamlessly with reorder systems.
  • Machine Learning Models: These continually refine forecasting accuracy by learning from past errors and adapting to new data patterns.

5. Embracing Technology: The Modern Alchemist’s Stone

Amazon, the retail behemoth, isn’t just thriving on scale but also on technological acumen. Their inventory precision, powered by avant-garde AI, predicts and adjusts to the fluctuating tides of global demand.

Tech Advantages:

  • Dynamic Reorder Points: Smart AI systems, noting a meteoric rise in rain boot searches, might proactively recalibrate stock levels, anticipating real-world demand spikes.
  • Alert Mechanisms: Stay ahead of the curve with instant notifications. Whether it's a celebrity endorsement or a viral trend, being in-the-know means being prepared.

6. The Importance of Periodic Reviews and Course Correction

The global pandemic serves as a poignant reminder. Businesses across the spectrum found themselves revisiting and often overhauling their demand and inventory strategies, accentuating the imperative of regular check-ins and agile adaptability.

In the dynamic world of supply chain management, mastery lies at the intersection of strategic planning, technological prowess, and adaptable foresight. Embracing these tenets ensures businesses remain robust, efficient, and perpetually in tune with market harmonics.

At trace., our supply chain team can help your business navigate the complexities of advanced planning systems. We understand that in today's fast-paced business environment, selecting the right planning system isn't just about keeping track of inventories but about holistically integrating every element of your supply chain to foster agility, responsiveness, and profitability. By leveraging our deep industry insights and analytical capabilities, we meticulously evaluate your unique business needs, processes, and challenges. We then juxtapose these findings against the capabilities of leading advanced planning systems in the market. The outcome? A tailored recommendation that ensures your chosen system is not just technically advanced, but also intricately aligned with your strategic objectives, ensuring a seamless fit and transformative results. With trace. by your side, you're not just investing in a tool, but a future-ready solution primed for growth and excellence.

Contact us today, trace. your supply chain consulting partner.

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