Inventory Control vs Inventory Optimization in a Distribution Environment

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The terms “inventory control” and “inventory optimization” are sometimes used interchangeably, but they are two different concepts.

Confusing them can cause an organization to focus on one rather than the other. Achieving and maintaining both are critically important to the marketer as they provide different results.

If your inventory is optimized, you have the right SKUs in the right quantity in the right warehouses. With proper inventory control, the accuracy of your locker level allows for consistent order fulfillment, increasing on-time fulfillment (OTIF).

Technology can help you achieve both.

“Organizations are increasingly using more sophisticated models to optimize inventory. It is no longer enough to make forecasts based on simple weighted averages and set safety stocks and reorder points once a year,” said Dan Koch, vice president of information technology at AD. “Retailers need to use advanced analytics models to meet rising customer expectations and rapidly changing supply chain events. Using advanced analytics to optimize inventory will become a major challenge for retailers in the next five years. »

So what do these two similar but disparate terms mean, and why are they so important?

Inventory control

Inventory control is the processes and procedures used to maintain inventory on hand in a distribution center or warehouse. The goal of inventory control is to achieve 100% inventory accuracy. These processes affect all parts of the DC or warehouse.

Gaining proper control over your inventory begins during the receiving process. The goods are unloaded and subjected to a quality control stage before being put away. This process can vary widely, but some quality checks should take place during the receiving process. There are several reasons why distributors should perform quality checks on incoming goods, such as verifying that the correct item(s) are present in the quantities ordered and in good condition. Your ERP must have an efficient way to capture quality data for your suppliers. Inaccuracies during the receiving process cost the distributor time and money with unnecessary exception handling.

After the goods have finished going through the receiving process, they are put away in bins or bins for future pick-up. The more manual the process, the more errors are likely to occur. It is essential to ensure that the correct item, in the correct quantity, is placed in the slot or bin both physically and consistently. While goods are stored in the warehouse, cycle counting is performed to maintain inventory accuracy and comply with Sarbanes-Oxley rules. Other activities that can impact inventory accuracy are consolidations, replenishments, and picking. With real-time cycle counting in your ERP, inventory accuracy increases. Better inventory accuracy can lead to increased sales. To learn Reynolds Catering increases efficiency and accuracy in this linked case study.

Procedures should be appropriately documented, taught, and retained to maintain proper inventory control throughout these processes. Favorable results are achieved only through consistent application of processes.

Inventory optimization

Inventory optimization is all about keeping the right amount of inventory in the right place.

A distributor’s inventory is its most important asset. If your inventory is not optimized, it can lead to adverse situations that can escalate into out of stock, out of stock, and poor customer satisfaction. Many buyers are aware of the negative consequences of out of stock, which leads to the tendency to buy too much stocks, resulting in overstocks.

Excess inventory ties up valuable capital and can cause obsolete products to depreciate. Additionally, excess inventory takes up valuable space in your DC, making it less efficient and increasing the risk of being stuck with dead inventory. The space freed up through inventory optimization can be used to improve your product offering.

“It’s important not to treat inventory optimization as a one-time event,” warned Leanne Moll, Infor manufacturing manager at Deloitte. “Leverage state-of-the-art technology to create a repeatable process that maintains the efficiency you’ve gained. This way you generate recurring value.

As your network becomes increasingly complex, good inventory optimization is essential. The challenge is to have the right inventory and quantities in your network and have them in the right places. Failure to optimize inventory leads to inconsistent deliveries and increased last mile delivery costs and times. Correctly positioning inventory in your network solves all of these problems. The right ERP helps optimize your inventory by systematically adjusting inventory levels based on the habits of your sellers and buyers.

Businesses focused on providing a consistent customer service experience optimize inventory and service levels while reducing ownership costs. By using the demand planner function in your ERP will optimize your inventory through increased forecast accuracy. Demand Planner creates automatic forecasts based on more than 20 application-based statistical methods. Demand Planner uses sophisticated statistical algorithms to detect demand patterns, outliers, seasonality, and exceptional events. It also allows you to visualize and identify the issues you are looking for, increasing the accuracy of your forecasts. With increased forecast accuracy, you’ll respond more quickly to supply chain issues, reduce your lost sales due to product unavailability, and lower your overall inventory levels.

Maintaining good inventory control and optimizing inventory levels is essential for any distributor. Consistent processes and procedures, combined with the right technology, will make your operation more efficient and profitable.

Will Quinn is director of industry solutions and strategy at Infor.

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