Customer case: Solving common inventory problems

Symptoms of inventory management pain

Our partner, Establish, was already working with the company and had done the groundwork. Many of the usual signs were there: late deliveries, stockouts of critical products, excess stock of slow-movers tying up capital, and people running around chasing backorders.

The company’s inventory management processes and systems were undoubtedly failing. The question was – what do we need to do to fix it?

ERP limitations and the importance of product categorization

One of the main problems was the absence of product classification. The company’s ERP system treated high and low margin items the same and gave little consideration to service level agreements.

As a result, they couldn’t deploy item-specific inventory policies for their 5,000+ products. On top of that, the ERP system could not determine optimal stock levels and replenishment parameters.

Proof of Concept – ABC classification and safety stock optimization

The manufacturer needed a more targeted and business-focused inventory management process. Together with our partner, we decided on a three-step proof of concept.

Step 1: We started by developing a product classification framework based on inventory cost, delivery targets, and profit margin.

Step 2: Next, we used Optimity’s ABC Analyzer to automatically assign an ABC class to each product’s respective dimensions and determine a combined product-level classification – with A-products demanding more consideration and a higher service level than B and C items.

Step 3: Finally, we used Optimity’s Inventory Optimizer to optimize safety stock levels and replenishment quantities and frequencies based on the new inventory classes.

This exercise didn’t take long and it showed the immediate benefits of an automated and more scientific inventory management approach.
The optimal stock level for an item will vary as the product moves through its life cycle, which is why a dynamic approach to inventory management is vital to achieving sustained benefits.

The optimal stock level for an item will vary as the product moves through its life cycle, which is why a dynamic approach to inventory management is vital to achieving sustained benefits.

A quick fix or a long-term solution?

Highlighting the need for change is not the same as implementing lasting change. This is a different challenge altogether and requires more than just insight – even with the best intentions.

The optimal stock level for an item will vary as the product moves through its life cycle, which is why a dynamic approach to inventory management is vital to achieving sustained benefits.

Based on the insights and learnings from the proof of concept exercise, our client decided to license the Optimity Inventory Optimization solution.

The results

The company is now live with the Optimity system. The ability to automatically classify and re-classify products based on what matters most to the business means that planners can manage stock issues more effectively.

Additionally, by continuously optimizing safety stocks and order quantities to absorb demand and supply variability, the company now minimizes its inventory investment while keeping customer commitments.

If you are experiencing similar inventory management issues, don’t hesitate to get in touch.