Managing a productive supply chain

Doing more with less - that's what productivity is all about. We all want to get more return from fewer resources. Although a virtuous concept, it can be painful for those who don’t get it right. So it’s important to identify the parts of the supply chain where you can increase productivity and where you can’t.

There are three key areas where retailers can improve productivity:

• Inventory levels
• Service levels
• Purchasing resources.

Any planner knows that inventory levels and service levels are often intrinsically linked – and optimising both takes a lot of effort by your purchasing team, so where do you start? Total inventory holding costs have been rising consistently since 2003 and show little sign of stopping in an environment of next day deliveries, increased competition and easy access to alternative suppliers via the internet. Can you lower inventory holding costs and buck the industry trend? There is a way.

Putting your historical data to work is a good beginning. For most wholesalers and retailers, this data is digitally available, although perhaps in different systems. With the right tools, this data can be accessed and used to increase availability whilst reducing stock-holding at your warehouses or distribution centres, releasing much-needed working capital.

Guaranteeing reliable product availability is traditionally done by setting the right safety stock levels for all products, often through min-max calculations based on the average demand pattern. The result is that products with a very predictable demand pattern often carry too much inventory whilst products with more erratic demand patterns suffer from stock outs.

The way to avoid this trap is the introduction of SKU segmentation to increase the understanding of the effect on safety stocks of different demand patterns. One of the benefits of segmentation is the ability to apply safety
stock settings that match the demand pattern of each SKU segment. The result - lower inventory levels whilst maintaining or improving service levels.

Sounds fine in principle, but in practice how do planners handle the often immense numbers of SKUs involved? The answer is simple: They don´t.

AGR includes the exception management features needed to provide SKU segmentation

SKU segmentation allows supply chain planners like AGR Dynamics to identify a large proportion of your SKUs that can be managed automatically. The bulk of SKU segments will follow different, but predictable, patterns whilst exception reports mean that it's possible to identify those that don’t fit well into any pattern. This smaller group of SKUs have the potential to deliver a high forecasting error and so need to be manually manipulated to achieve the right safety stock levels, especially if they are high sales or high profit items.

By allowing the majority to be handled automatically and intervening in exceptional cases where the data shows you should, you get greater productivity from planners, improved accuracy of your forecast and ultimately an increase in overall profitability. This manage-by-exception approach focuses planners on the parts of the product range that really need your attention, leaving steady and predictable segments to pass through unsupervised to automatic purchasing.

If you add to this the ability to track the performance of your forecast last month against the actuals from last month, again highlighting the exceptions that sit outside the norm, you can judge how effective your strategy is to intervene or not. A side effect of this approach is a considerable reduction in the time spent on the purchasing process, increasing productivity even more.

AGR Dynamics has designed a powerful demand planning and inventory optimisation solution to deliver this functionality for companies like yours. It´s a web based system, fully integrated with Dynamics NAV. It solves all these important inventory and purchase planning issues through a simple and intuitive user interface. One of the major advantages of the AGR solution is its powerful forecasting tool and unique ability to calculate demand at the lowest possible level to increase accuracy.

This approach allows AGR Dynamics to set safety stock levels for individual SKUs that fit their forecasted demand pattern. It also offers the additional option to set the service level you want, even down to the level of individual SKU, to further tailor the safety stock held to your exact needs.

AGR includes the exception management features needed to provide SKU segmentation. It can monitor the performance of the forecast and safety stock settings against actual sales and help achieve higher sales using predefined reports that highlight irregularities such as potential stock outs, forecast accuracy, potential forecasting errors, slow movers, late deliveries, over-stocks and more.

With AGR Dynamics customers can accurately target the service level they want to offer at the same time as reducing overall stocks and delivering more with fewer resources. AGR gives the Dynamics NAV user a whole new range of tools and opens up a plethora of opportunities. As Franz Kafka so eloquently put it: 'Productivity is being able to do things that you were never able to do before.’

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