3 Supply Chain Techniques for Optimal Inventory Management

Inventory planning is the process of strategically managing and tracking the inventory levels as the products move across the value chain. As the product moves from the production facility of the manufacturer to the point of sale, the supply managers ensure that the product is delivered on time.

The strategic interplay ensures optimal inventory levels are met, reducing the risk of common inventory issues, from high storage costs to out-of-stock items.

When it comes to optimizing inventory levels, here are a few things to consider:

• It will be different for every brand.
• Each SKU may require a different optimal inventory level based on demand.
• Optimal inventory levels can change quickly (monthly, seasonally, and annually as you grow).

Ultimately, optimizing inventory becomes more complex as:

• Your order volume increases.
• You introduce more products.
• You expand your physical distribution.

Optimal inventory management is crucial for the efficiency and profitability of a supply chain. Here are five supply chain techniques to help achieve optimal inventory management:

ABC Analysis for Inventory Control

An ABC analysis is an inventory categorization technique that helps merchants find their most (and least) valuable products. The supply chain managers can categorize their inventory levels based on the 80/20 rule (Pareto principle). The three categorizations are made according to the total revenue levels.

• A grade: This is the best-performing inventory, with the highest annual consumption value and customer demand.
• B grade: This is the middle-of-the-road inventory that accounts for the next 15% of your revenue.
• C grade: This falls at the lowest tier and accounts for the remaining 5% of your revenue.

ABC Analysis is a valuable technique for inventory control, offering several benefits to businesses. By categorizing inventory items into A, B, and C groups based on their importance and value, organizations can prioritize their efforts and allocate resources effectively. High-value items (Category A) receive closer attention, allowing for optimized resource allocation, reduced costs, and improved cash flow as excess inventory is minimized.

This approach also enhances demand planning accuracy, reducing the risk of stockouts for critical items and improving overall service levels. ABC Analysis provides a structured framework for continuous improvement, allowing businesses to adapt to changing market conditions and product values and ensuring enhanced supply chain performance.

Just-in-Time (JIT) Inventory Management

JIT is an inventory management method that focuses on keeping as little inventory on hand as possible. Instead of stockpiling products and raw materials, you order small shipments to replace inventory as you forecast and fulfill orders. This approach is designed to reduce costs from the production process while ensuring the highest quality of products.

With JIT inventory, you can eliminate excess inventory and overstocking, which can be expensive and take up a lot of space. You’ll also be able to reduce the losses that come from defective products by identifying and resolving them easily as a result of low production volumes.

Moreover, ordering fewer products more frequently will allow you to be more flexible with your inventory. This allows supply chain managers to address customer behavior and shopping trends, putting themselves ahead of their competition.

Safety Stock Management

Stock inventory usually consists of cycle stocks, or the inventory that is expected to be sold within a given period, and safety stock. Safety stock acts as a buffer amount that accounts for uncertainties such as:

• Excess demand
• Supplier delays
• Inaccurate demand or inventory forecasts
• Failure to place timely reorders
• Financial constraints

Investing in safety stock management helps offset demand uncertainty. Many factors can influence spikes in demand, including seasonal impacts, sudden shifts in customer trends, panic buying or a competitor’s departure. Safety stock gives companies enough breathing room to replenish stock while meeting this increased demand.

Moreover, maintaining adequate safety stock ensures consistency and allows decision-makers to develop more accurate forecasts across the organization. Although demand forecasts are usually reliable, sudden changes can cause them to become inaccurate. The effect of stock disruptions is compounded in other forecasts, such as supply chain staff scheduling. These issues are especially troubling when stock disruptions cause a loss of revenue or customers as sales and other financial forecasts become invalid.

Safety stock mitigates the risks and consequences of stockouts, allowing your supply chain to proceed as usual even after cycle stock runs out.

Maintain End-to-end Supply chain Visibity with D365 Supply Chain Management

Dynamics 365 supply chain management is a comprehensive business process management solution that can help organizations optimize their inventory to deliver processes. The platform provides end-to-end visibility into the entire supply chain, from procurement and inventory management to order fulfillment and delivery, thereby benefitting all of the stakeholders in the value chain.

The key stakeholders required to define the inventory to delivery business processes include:

• Inventory stakeholders
• Customer service stakeholders
• Planning stakeholders
• Procurement stakeholders
• Sales stakeholders
• Production stakeholders

Dynamics Solution and Technology helps businesses seamlessly attune your industrial business landscape with Microsoft Dynamics 365 Supply Chain Management. Being a Microsoft Gold Partner, we have a global footprint for numerous satisfactory clients across the globe, especially in the Gulf and Mena regions.

A testimony to win business excellence, our experts ensure a seamless deployment process, allowing you to witness significant technological breakthroughs and tread the path to success.

If you are looking for ways to deploy Microsoft Dynamics 365 Supply Chain Management into your business, then look no further and contact us today.

Your supply chain transformation begins today!