The Tie Between Better Forecasting and Better Inventory Management

For distributors, inventory flows from the manufacturer to distribution centers and branch locations, eventually ending in the hands of a customer. This process requires a fine balance between having enough product in stock to meet customer needs while not having too much. The goal is to avoid losing money from overstocking items that fill the shelves of your distribution centers or understocking and missing out on sales. Striking that balance can sometimes seem like an impossible feat, which is where better inventory forecasting and demand planning comes into play. Traditionally, distributors have relied on purchase history to plan.

The pandemic and other challenges of the past several years have made demand planning challenging at best.

With the right technology and analytics, you can improve demand planning, in turn improving service, bettering operational efficiencies, and increasing customer satisfaction.

The Problem with Traditional Inventory Forecasting

Inventory planning has traditionally relied on historical data as the foundation. Distributors referenced past customer behavior to predict how customers will act in the future, usually factoring in seasonal trends, events, and other more predictable market trends.

This method has its pitfalls. It doesn’t consider multiple streams of revenue, competitor behavior or the potential influence of erroneous events, like a pandemic or supply chain disruption.

In addition to a company’s overall strategic goals for the year, distributors also need to be aware of and plan for internal factors and external market factors:

• Marketing campaigns from internal teams, vendors, or customers
• Current inventory levels
• Outstanding orders
• Maximum stock levels of warehouses
• How customers respond to particular items
• Weather-related challenges or similar external events

Also, the farther into the future you try to plan, the murkier the looking glass becomes. Distributors have two avenues to consider when managing inventory: what customers might want and what the business can afford without too much risk. It’s that fine balance again. Distributors must leverage data analytics, AI and machine learning, and an integrated cloud ERP such as Microsoft Dynamics 365 Finance and Supply Chain Management to better forecast for more precise inventory planning.

The goal is to integrate potential fluctuations in demand, lead-time complications, evolving customer needs, launches of new and/or competing products, or the launch of different products within the company.

The future is dynamic. You need a master plan that understands that susceptibility, too. When inventory management and demand planning align, distributors can:

• Have the right amount of stock on hand, without over- or underinvesting.
• Increase fulfillment rates.
• Grow service levels.
• Lower operational costs.
• Improve operational efficiency.
• Reduce the risk of disruption.
• Gain better insight into customer needs and increase customer satisfaction.
• Maintain a competitive edge.
• Improve communication with suppliers.

How to Use Technology for More Reliable Inventory Planning

Using Microsoft Dynamics 365 Finance and Supply Chain Management, distributors can create a sophisticated master plan to balance their inventory management to meet both company goals and customer needs.

• Create static and dynamic plans to weather the ebbs and flows of business.
• Incorporate master planning (using current orders for short-term inventory management) and forecast planning (calculates gross requirements based on forecasts for long-term inventory planning).

What the solution brings to the demand-planning table is advanced algorithms and machine learning to decipher trends on a level that humans can’t do alone. The software also remains up to date as new information is fed in, whether that’s from sales reps, the weather report, or the news. In addition, Dynamics 365 Finance and Supply Chain Management can decrease manual labor associated with inventory management by automating certain tasks, like reordering.

Microsoft has multiple tools that have helped distributors navigate uncertainty, as well, including their new Supply Chain Insights, which provides AI-driven forecasts and visibility across the organization. Power BI provides easy-to-use and -consume dashboards for quicker insights and alerts, and Microsoft Dynamics 365 provides a 360-degree view of your operations to ensure you have what you need where you need it to meet customer demand.

You can also leverage features such as Order Promising, which allows you to provide reliable shipment and delivery dates to customers based on stock availability, known demand, planned supply, lead times, customer’s location and so on. That may also incorporate priority factors such as the customer you’re working with. It also incorporates flexibility around delivery dates to safeguard distributors and promote customer satisfaction. (Read more: Order Promising: How Distributors Can Do It Better in Today’s Environment.)

Next Steps

Getting stock levels right requires supply chain visibility, sophisticated forecasting, and a smart technology solution. With Microsoft Dynamics 365 Finance and Supply Chain Management, distributors can gain greater inventory control. Contact Sikich, a certified Microsoft partner, today.