Inventory Optimization
Knowhow’s inventory optimization package offers a range of options to meet the specific needs of clients. These options include but not limited to comprehensive audit management, portfolio classification, profitability analysis, service level setting, ROP analysis, scenario analysis, Availability vs Out of Stock Cost (AVOOS) cost analysis, and Inventory Optimization Indicators (IOIs) as a standard KPI scorecard for inventory management. The package also includes ABC-XYZ analysis, as well as the guidance of a project lead for software implementation and workshops to help clients fully utilize the inventory management tools.
| Sections | Explanation |
| Inventory Management Audit | We conduct a rapid audit of our clients’ existing inventory management policies and adherence to these policies. Our audit process provides a comparative analysis of benchmarks versus the current state of inventory management, as well as opportunities for improvement. Our analysis includes a thorough review of portfolio management, utilizing Pareto Analysis, comparing forecast accuracy against excess stock, and categorizing SKUs as slow-, mid-, or fast-moving. We also provide recommendations for obsolescence management, conduct an analysis of Non-Performing Inventory (NPO), perform Return on Investment (ROI) analysis, and review the existing KPIs in order to optimize inventory management. |
| ABC based Portfolio Classification | We take the perspective of the client into consideration when analyzing their existing portfolio based on specific criteria such as sales value/volume or margin. We then classify the portfolio using Pareto analysis, based on the required percentage of the split of the portfolio. We can use single or multiple criteria for the classification of the portfolio, with different weights assigned based on the client’s decision. |
| Stock Profitability Analysis | Our comprehensive analysis of inventory cost for the portfolio on hand includes an evaluation of profitability generated. We calculate the stock-profit index by analyzing historical sales performance, the cost of goods for the relative portfolio, sales forecast history, and the fixed and variable expenses of inventory. Our analysis also considers the impact of supplier delays, variations in supply volume, manufacturing delays, and non-forecast demand on profitability. By considering these factors, we provide a comprehensive view of the profitability of the portfolio and help our clients optimize their inventory management strategy accordingly. |
| Service Level Setting Process | To achieve optimization, it is essential to set a target service level. The service level, which is expressed as a percentage, directly impacts on-shelf availability. We measure the service level of a portfolio at the SKU level through comprehensive analysis of portfolio classification, including XYZ analysis. The importance of each SKU is analyzed based on multiple criteria and then classified. Based on the results of the classification, we recommend the optimal service level. Varying the service level in accordance with the correct classification ensures that working capital is deployed in proportion to where the most value is returned. By setting a target service level and optimizing it through our comprehensive analysis, we help our clients achieve their inventory management goals. |
| Re-order Point (ROP) Analysis | To set an optimal inventory target, two elements are required: cycle stock and safety stock. These two elements, when added together, provide the Reorder Point (ROP). The ROP is the level at which the stock must be before a replenishment order is placed. To calculate the optimum ROP, we conduct probability analysis and set service level targets. Additionally, we analyze the accuracy of supplier lead times and the standard deviation of sales forecasts. By taking these factors into consideration, we can ensure that the supply is maintained during the replenishment lead time and protect against unforeseen fluctuations in supply or demand. By calculating the optimal ROP, we help our clients set an appropriate inventory target that meets their specific needs. |
| “What if” Scenario Analysis | At KnowHow, we place a specific focus on continuous improvement in inventory management. As part of our approach, we undertake “what-if?” scenario analysis against the calculated inventory targets. Through this analysis, we analyze variations in inventory cost, capital savings, risk of sales miss, and sales opportunities. By exploring different scenarios, we help our clients identify potential risks and opportunities and adjust their inventory management strategy accordingly. This approach enables us to continually improve our clients’ inventory management and ensure that they are well-positioned to meet changing market demands. |
| Availability vs OOS (AVOOS) Cost Analysis | In inventory management, it is critical to determine which situation is less costly: excess stock or out-of-stock. To help our clients make informed decisions in this regard, we conduct (Available Versus Out of Stock (AVOOS) Analysis. Through this analysis, we explore which options are better and to what extent, for which product groups and under what circumstances. By doing so, we provide our clients a standardized roadmap to make optimal decisions when it comes to order management. This approach helps our clients avoid unnecessary costs associated with excess stock or lost sales due to out of stock situations. |
| Inventory Optimization Indicators (IOIs) | Inventory Optimization Indicators (IOIs) are a standardized package of KPIs that are vital for any organization to benchmark and routinely track the performance of their inventory management. IOIs include KPIs such as Days of Supply, Inventory Turnover, Gross Margin Return on Investment (GMROI), Inventory Velocity, and many others. By regularly monitoring these KPIs, organizations can gain valuable insights into their inventory performance and make informed decisions to optimize their inventory management. This approach ensures that organizations are constantly improving their inventory management practices and staying competitive in the market. |
| ABC-XYZ Analysis & Implementation | Pareto analysis is used to classify portfolios based on sales value, volume, and/or profitability. This classification enables portfolios to be categorized as (A) the most valuable, (B) less valuable, or (C) the least valuable. On the other hand, XYZ analysis is used to classify planning objects based on the variance in a specific coefficient. This analysis provides a second dimension that enables portfolios or any group to be classified based on frequency or variation. As a result, the analysis shows (X) very little variation/frequency, (Y) some variation/frequency, and (Z) the most variation/frequency. By utilizing these classification methods, organizations can gain insights into their portfolio and inventory management and optimize their strategies accordingly. |
| Inventory Optimization Workshop | We offer 2 to 5 day workshops for our clients to learn the latest techniques and guidelines for inventory optimization. Our workshops cover a range of topics such as inventory analysis, forecasting, demand planning, safety stock calculations, and order management. By attending our workshops, clients will gain a better understanding of the inventory optimization process and learn practical skills to implement in their daily operations. Furthermore, our workshops ensure the continuity of optimization in the process, providing clients with a roadmap to ongoing improvement. |
| Inventory Optimization Software & Implementation | If a client has already standardized their inventory optimization process and is working optimally, the next step is to automate the process. Knowhow can assist in leading the project to implement the best-suited software for advancing the client’s inventory optimization process. |