In this video we’ll see how to optimize inventory - which means finding that fine balance that lets you reduce the amount of inventory you carry without running out the products that your customers want. This is done by creating Stock Plans, which you can do from the Replenishment dashboard.
Before we do that though, I want to cover, in broad strokes, what a stock plan is, how it’s prepared and what information is required in order to create one.
A stock plan is basically just a set of recommendations as to what you need to buy to ensure that you have enough stock on hand to meet forecasted demand.
Before creating a stock plan then, we first need a demand forecast. The forecast is what we expect to sell and needs to be a detailed SKU level forecast (which means the SKU field needs to be the last item in the hierarchy for that forecast).
Additionally, we need to know what stock we already have. We most likely already have at least some of the stock on hand that we’ll need. The software takes that stock into account when calculating what stock you need to buy.
Finally, when you place orders with suppliers, delivery is not instantaneous. There will inevitably be some delay before goods will be available to customers - which is known as the Lead Time. Lead time has an important impact on replenishment decisions.
To understand why, imagine that our forecasted demand for Widgets in the next 4 weeks is 200 Widgets per week (so 800 Widgets in total). After that, Widget season is over and demand will drop significantly. To keep things simple, also assume that we don’t currently have any Widgets in stock. A naive solution would be to order 800 widgets.
However, if the lead time for ordering in new Widgets is 1 week, by the time the Widgets arrive, we will already have missed 200 sales and there will only be 3 weeks left in the selling season - so after taking lead time into account we only need to order 600 widgets. That way, when the new Widgets arrive, we’ll have enough Widgets on hand to cover forecasted demand from the point in time when the Widgets actually arrive (rather than from when we place the order).
So, to recap, to create a stock plan we need a SKU level demand forecast and we need to know both current stock levels and lead times.
Back to the replenishment dashboard in skuBrain then, let’s create a Stock Plan by clicking on the New Plan button. This takes us to the stock plan wizard.
At this point, you will see one of two quite different things.
- If you’ve hooked skuBrain up to your ERP system, the software will be able to fetch current stock levels for the products that you sell directly from your ERP system. In that case, you simply need to select a demand forecast to be used for the stock plan and specify the lead times for ordering goods from each of your suppliers.
- If you don’t have an ERP Integration enabled then you’ll need to provide your current stock levels and lead times as a CSV file instead.
For this video, we’ll assume skuBrain is hooked up to an ERP system (since that’s probably the most common use case). As such, we simply select the demand forecast that we want to use for the stock plan and enter the lead times of our various suppliers (these will be saved, by the way, so the next time we create a demand plan we won’t need to enter these in again unless they’ve changed).
After that, click on the “Create Plan” button and then let skuBrain do it’s thing. Creating the stock plan involves a bunch of calculations that get run in the cloud, as a job. As always, you can monitor job progress from the Jobs dashboard… it will probably take a couple of minutes and you’ll get an email when the stock plan is ready. Once it’s finished, you can click on the Stock Plan from the Replenishment dashboard to open it.
The stock plan is essentially a report. At the top of the report you can see the settings that were used to create the plan (which can be modified in your project settings). Below that is a quick summary showing the total number of SKUs and products that either need to be replenished or which are considered overstock (and which you might therefore like to consider for promotions in order to free up cash). Underneath the summary you can see recommendations for specific SKUs.
And since you likely won’t be placing orders for each SKU individually, at the top of the report there is a Download CSV button that you can click on to export the recommendations as a CSV file that you can open in Microsoft Excel or Google Sheets or whatever. If you take a look at the replenishment section of your project settings, you’ll see that there’s quite a bit going on under the hood here that I haven’t covered in this video, so there’s plenty more to talk about in videos to come.
Hopefully this covers the basics of inventory optimization though and is enough to get you started. For those who crave a bit more information, I’ll include some links to further resources after the video transcript.
That’s it for now. Go forth… and optimize!