While today's inventory management software has more computational power than ever -- segmenting inventory by profitability, calculating safety stocks down to the SKU level and other sophisticated features -- there are other inventory management challenges that need to be addressed. Experts agree that effective inventory management goes hand in glove with demand forecasting, requiring a symbiosis of the people and systems in traditionally separate demand planning and inventory management organizations.
Asked to identify the most common inventory management challenges, a handful of analysts, vendors and users coalesced around five themes, all of which relate to putting quality information in the hands of your most knowledgeable people -- at exactly the right time. They also offered tips and advice for overcoming these challenges.
Inventory management challenge No. 1: Integrating demand planning and inventory planning
People, systems and databases must all talk to each other. A formal sales and operations planning (S&OP) strategy with support software such as dashboards can help. You might also have to create a demand and supply planning organization overseen by someone in the executive suite.
Integrating specialized demand and inventory planning software together, and to related systems such as ERP, is both an opportunity and a need not adequately addressed by the industry. Vendors admit they spend significant time integrating their software into existing supply chain management (SCM) systems.
"You want one tool that's going to be able to speak every group's language," said Noha Tohamy, an AMR Research vice president.
Inventory management challenge No. 2: Training users of demand planning and inventory management software
For some people, forecasting will be an entirely new discipline. Companies that have successfully implemented inventory management software stress the importance of teaching the underlying methodologies before handing out the software.
Webinars, slide shows, and classroom instruction can spread the gospel about your company's new planning processes. A train-the-trainer approach is one of the quickest, least-expensive ways to make people comfortable with inventory management software.
Ease of use should be high on your list of criteria when deciding among vendors, but don't ask people to take on too much at once. Let them start with basic functions and build from there.
Inventory management challenge No. 3: Change management: Dumping those old spreadsheets and paper
Inventory managers can be reluctant to give up their familiar ways. You might have to forbid the use of spreadsheets, for example, to get people to switch to new inventory management software. To ease the transition and build trust, sit down with users and demonstrate the benefits. Ironically, it might help to simulate the software in Microsoft Excel for those who have never made the transition from paper.
Executive champions in the IT and business sides and easy-to-use software can also further buy-in that enables cultural change.
Inventory management challenge No. 4: Standardizing data
Some companies have been tripped up by having too many definitions for the same data, such as purchase orders and product categories. Standardizing data definitions is a necessary step in building an architecture that works across departments and locations.
You might also need to clean up the sales and inventory data coming into the system, perhaps by reformatting legacy data or writing an application that collects the information you need.
Inventory management challenge No. 5: Choosing just the demand planning and inventory management modules that suit your business
The unique nature of your demand will determine which components you need. Goods can be expensive to ship overseas and delays can squash revenue gains, so a well-honed demand planning tool updated with real-time sales numbers is essential. But if your sales typically come from large deals, inventory management software merits more attention.
About the author: Freelancer David Essex has covered information technology for BYTE, Computerworld, PC World, and numerous other publications and web sites.
This was first published in November 2009