At Profit& we believe that maximising profitability and achieving competitive advantage hinges on a concerted effort to enhance efficiency and connectivity in multiple discrete management processes, with the clear intention of creating a conducive environment to collaborative, agile decision-making.
When I lived in the UK I became familiar with the saying - take care of the pennies and the pounds will look after themselves. The same is true for all of those smaller day-to-day decisions and actions, for it is these that will add up to a big difference in financial performance.
So let’s take a deeper look at how this can play out in Inventory Management and how to affect those small decisions that will make a big difference. After all, Inventory Management sits at the heart of every manufacturing business, and significantly impacts the entire supply chain process. This means that it’s critical to have visibility of the latest demand and supply data, and collaborate effectively with the teams that Inventory Management processes interact with.
Inventory Management processes are subject to the very real challenge of bringing together data from multiple data sources. Typically, this involves data coming together in multiple connected spreadsheets to provide a complete picture of demand forecasts and supply channels. All this data is needed if planners are to achieve their goals of remaining within stock policy, and meeting production demand, whilst preventing the build of excess and obsolete stock, and the costs associated with this.
A common barrier to speedy decisions is the delay caused by the time it takes to refresh spreadsheet models with the latest data, as well as the reliability of results. This is why a platform approach is critical in Inventory Management.
real time insights
Among all the data there are key issues and challenges that Inventory Management must address. The trick is bringing these to the surface so that they can be dealt with, proactively, before they occur, as opposed to being reactive sometime later. So let’s remove the data challenges that get in the way by moving Inventory Management onto a digital platform. Spreadsheets are a fantastic personal productivity tool, believe me, I’m a fan! But when it comes to high volumes of data coming together into some reasonably complex interconnected models they have serious limits, not least the difficulty of avoiding data errors.
Automatic data feeds into a central database on a digital platform, once set up, can refresh data when it’s needed, be it real-time or near real-time, you decide the frequency! The reverse is also true. I can think of several instances of data feeding back into the ERP to suggest new orders, or adjustments to order volume or timing, where Inventory Management has noticed a change in demand for example. This means overordering can be prevented before it happens, something that would be unachievable in the spreadsheet environment.
Direct feeds into a digital platform remove the risk of introducing errors, and once the data is refreshed the platform takes care of the calculations. In a recent Profit& webinar, Anna Latoszek, Finance and IT Director at Savencia, a dairy produce manufacturing business, reported that their Anaplan digital platform not only eliminated errors being introduced, it also highlighted errors in source systems that were used to correct these systems in retrospect. They realised that they were not fully cognisant of the level of inaccuracy they had been subject to previously, and as a result, intentionally set out to eliminate spreadsheets from their processes entirely.
This came as no surprise to me as this situation is in fact commonplace in Profit& digital platform transformations. In a recent parallel testing of a client’s EMEA excess and obsolete model on the Anaplan platform, against the legacy spreadsheet model, it was found that 90% of the differences in the results were because the spreadsheet model was wrong.
The benefit of the platform approach is clear! Accurate reliable data is available continuously without weeks of effort. Who can argue with that? Moving from weeks-later-catch-up decisions, where issues are picked up late, to making those small day-to-day adjustments drives significant value, particularly in Inventory Management, which sits at the centre of, and impacts multiple business processes.
So what’s left for planners to do? Well frankly, their job! Be proactive to root out the common causes of issues like the buildup of excess and obsolete. Track initiatives that are taken to prevent issues recurring and assess how well these are working to drive long-term sustainable improvements. Focus on the alerts and key thresholds, such as safety stock limits, and take all those small decisions as and when they need to. Those small day-to-day decisions add up to some big differences! They support critical business activities like keeping production lines running, driving efficient use of warehouse space, reducing capital tied up in stock, and the cost of excess and obsolete disposal. Well, I did say at the beginning that Inventory Management has the potential to make a huge impact on performance.
return on investment: small decisions add up to a lot
Let’s assume that a business sets out to reduce the month on month inventory level that it holds through improved inventory management with the adoption of a digital platform. A good measure to take at the outset is current month on month inventory levels to see the effect as the initiative progresses. The reason this is a good measure is because a reduction on inventory will not only reduce working capital needs, but also lower our excess and obsolete provision, and as a result increase the profit reported.
A recent client I worked with, a motor vehicle component manufacturer, calculated that they returned 16 times their investment in the Anaplan digital platform in the first 3 years. This was calculated using two main measures; the reduction on excess and obsolete stock, and reduction of manhours of the many users involved in the process, including plant managers, inventory coordinators and financial controllers. I would be really interested to know what the impact of all those small day-to-day decisions returned! Sadly these are more difficult to put a number on. Nevertheless, the client in question is clear that the overall value is multiples more.
Another key measure that can be linked to effective inventory management is cost of goods sold (COGS). If a company maintains an appropriate level of inventory to meet customer demand by improving the accuracy and speed of response in inventory management processes, this can result in reduced carrying costs, lower obsolescence and more efficient use of working capital. This will naturally lead to a reduction in COGS.
Another return to consider is operating costs. While operating costs may not be directly related to inventory management, more accurate inventory forecasts can influence operating costs. For example, better inventory management can lead to improved supply chain efficiency, reduced warehousing cost and more efficient production scheduling, indirectly impacting components of operating costs such as utility, rent and even depreciation.
It’s clear that inventory management is worthy of close attention when it comes to taking care of the pennies so that the pounds can look after themselves - or as we say here in Poland - the grosik do grosika!
If you’d like to learn more about Inventory Management take a look at our accelerator applications on the Anaplan Platform for Inventory Management and Excess & Obsolete. These accelerators are designed to reduce Anaplan implementation time and cost so that you can deliver speed to decisions in inventory Management faster than you might think!
But the quest for collaborative, agile decision-making doesn’t stop here. Wherever you have over complex spreadsheet planning there can be substantial value to be gained in moving to a digital platform. Get in touch if you’d like to explore another process or extend a current digital platform application into another process, be it Supply Chain, or another discipline such as Finance or Workforce, we’d be happy to help you examine the potential value.