downwardly adjusted to mitigate risk of obsolescence and cost. 6) ABC Analysis and ABC Classification The fastest moving products in your inventory should be located closest to the shipping, staging, and receiving area in the lower-right of the diagram below. As the demand for each product decreases over time, products should be migrated backwards to free up space for items with higher inventory turnover or for new product introductions that have high demand. Since the majority of your picking activity is performed in a rather small area, your warehouse layout should be optimized to reduce time spent looking for product in the back of the
warehouse. Challenges of Wholesale Distributors of Durable Goods: Most of our distributor customers report having the same issues when it comes to inventory control: They experience stockouts of other products, resulting in backorders, lost sales, and dissatisfied customers. They have too much of some products which leads to excess inventory which ties up working capital and profitability. They have lost track of what is actually in inventory because their legacy applications cannot effectively keep up with growing demand and the speed of business. They can’t find material in their warehouse, but they know the material is in the warehouse but warehouse management systems says they have product on hand. With these common challenges come a few industry best practices that can eliminate, or at the very least, reduce the recurrence of
these issues. Distributors that have committed to putting into place some of the following best practices on average report 30% reduction in costs associated with managing inventory. How Can Optimization Be Achieved? Here are 5 inventory optimization best practices to consider that will lead to a more optimized supply chain: 1) Categorize Your Inventory This is similar to the ABC analysis practice where management categorizes its inventory according to its value and speed of turnover. Sales numbers and profitability margins are some of the ways stocks are valued. Inventory optimization software, such as EazyStock, can help inventory managers track an item’s demand and lifecycle across 9 different demand patterns, from new to growing to decline, to ensure replenishment practices and customer demand are never out of step with each other. 2) Automate Demand Forecasting The company’s performance is often dependent on external conditions such as seasonal demand, market trends, economic conditions and other business trends that can cause unpredictable demand variability . Automated demand forecasting can be used to take the guesswork out of how much inventory should be carried for a given period. Automation dynamically calculates an inventory item’s based demand according to historical sales data to ensure minimum and maximum order quantities are optimal.
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