If you think about it, inventory stocks on-hand really function as a buffer against the inevitable variability in supply and demand. As illustrated in the "buffer" diagram above, if demand always matched supply precisely, we would not need any inventory (i.e. a "buffer") - we could just connect the supply "pipe" to the demand "pipe" and everything would work just swell.
That, however, is almost never the case. Here's why ...
What's missing in most ERP solutions
What is missing in most ERP (enterprise resource planning) solutions is feedback about the condition of inventories between stock-outs and too much. In fact in most ERP systems, there is no too much warning at all! ERP systems will let you run MRP (material requirements planning) or other tools to help you identify actions that should be taken, but most of these systems do not provide clear, concise actionable information in a way that helps managers take the quickest and most effective actions to keep inventories in the optimal range.
Instead, most organizations find themselves in a constant battle fighting both stock-outs on the one hand, and too much inventory on the other.
There must be a better way.
How much stock are we holding?
Left to just a typical ERP system, most managers only know how much stock they are holding—in terms of dollars—once a year (or, maybe once a quarter, if their firm provides them with the data).
Sage Inventory Advisor, however, provides the "Stock holding" information to managers every time they open the dashboard. Even better, Sage Inventory Advisor tells them how that stock-holding value compares to a calculated optimal range for inventory holdings based on real and up-to-date information from the ERP system.
In this example (see Stock Holding figure), we can see that at this location, the firm is holding about $13.7 million in inventory, which happens to nearly twice the value of the optimal (model) inventory—estimated at $7 million. And remember: most ERP systems will never tell you what your target level of inventory should be. Your managers are left in the dark in that regard.
Most importantly, Sage Inventory Advisor calls attention to the TOP FIVE SKUs in this location contributing to high stock values due to over-forecasts.
Over-stocked conditions
Next, Sage Inventory Advisor can help managers decide what items are presently in excess and could be sold-off safely in order to free up cash flow for the firm. In the accompanying dashboard, we can see that the firm has $2 million in excess stock.
That's a big number, and it represents the cumulative excess stock value of more than 1,700 SKUs in this location. Nevertheless, managers can address more than ten percent of the problem--$212,200 of the total—by simply taking action on the TOP FIVE SKUs listed on the dashboard.
Imagine the cash-flow benefits that might accrue to a company that takes effective sales actions to liberate some $2 million in cash presently tied-up in slow-moving or obsolete inventories!
Surplus orders
It does the inventory management team little good to liquidate excess stocks from their warehouses if they remain unaware of the fact that they have open purchase orders for goods that are likely to become dead or slow-moving on arrival.
To meet this requirement, the Sage Inventory Advisor dashboard also calls managers attention to "surplus orders"—open purchase orders (or, perhaps, transfer or production orders) that are due to arrive before the stocks will be needed in this location.
The accompanying example indicates that there are about $1.5 million in surplus orders outstanding for this firm at this location.
Taking a closer look, however, more than 42 percent of those surplus orders ($630,500) are involving just five SKUs at this location.
Managers taking action to cancel or defer orders for just these five items can affect more than half-a-million-dollars in cash flow for the organization!
Stock outs
Of course, the other side of the coin is important, as well. Managers need to be made aware of stock-outs, too.
But with most ERP systems, awareness of stock-outs is all you get. And frequently, the awareness may come from a sales manager or an irate C-level executive after a customer calls.
Sage Inventory Advisor helps inventory managers identify the problem in multiple ways:
1. How many items are stocked-out at the present time? (1,215 in our example)
2. What are the potential damages (based on current demand for these items)? ($2.5 million in lost sales—typically calculated at cost, not the revenue value)
3. Which SKUs should managers address first? The TOP FIVE is a good place to start action, and, perhaps, rescue more than 10 percent of lost sales--$276,300.
But wait, there's more!
Sounds like a late-night info-mercial, doesn't it?
But, Sage Inventory Advisor really does offer more!
With Sage Inventory Advisor's dashboard at work for you, your inventory managers and buyers don't need to wait for those irate calls from sales managers and executives. With the "Potential Stock Outs" dashboard element, managers and buyers will be able to see those items that are facing potential (calculated) stock-outs within the next replenishment cycle.
In our example, we are seeing 869 SKUs at this location with potential stock-outs leading to upwards of $2.2 million (again, typically calculated at cost; the revenues are bound to be much more!) in lost sales.
If buyers and managers are able to take effective action on just the TOP FIVE SKUs listed for them on the dashboard, they may become the company's heroes by avoiding more than half-a-million-dollars in potentially lost sales. What a great thing to do!
So, there you have it—Why you need Sage Inventory Advisor (in pictures!).
See Sage Inventory Advisor in Action!
Take a look at the recording of a recent live webcast that demonstrates the features, capabilities, and benefits of Sage Inventory Advisor.
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Related Articles:
Introducing Sage Inventory Advisor - What is It Exactly?
Two Really Important Reasons Sage Inventory Advisor is for You
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