Order Optimization: Smaller (standard) order quantities, more full-pallet orders AND reduced retailer inventory

If you work in the Supply Chain between CPG and Retail this probably sounds too good to be true, but stick with me and I'll show you a win:win opportunity.

Inventory modeling is not "Normal"

We can build models to know how much inventory we need to hold of each product in each location. Do this well and you improve service levels AND reduce inventory.   I've posted on this topic before including an online calculator from a relatively simple Excel model to help you visualize the relationship between uncertainty, lead-time and case-fill rate. (Check out How much Inventory do you really need ?).

I wrapped up that post with a warning/disclaimer that the spreadsheet model was really too simple for real life use, but I didn't tell you why.  Now here's the kicker:  many packages appear to have the same problem and can cause you to severely underestimate your inventory needs and lose sales.

Inventory modeling in action

Inventory modeling and inventory optimization attempt to drive out unnecessary inventory from your systems, to improve service levels to your customers.  This does work and can drive very significant reductions in inventory, but, if you lack discipline around execution you will not get as much value as you should.

What's driving your Sales? SNAP?

SNAP is the “Supplemental Nutrition Assistance Program” (formerly known as “Food Stamps”) in the United States.  . “We put healthy food on the table for more than 46 million people each month.” http://www.fns.usda.gov/snap/ Could this be driving spikes in your sales?  If you are involved with food/beverage sales in the United States, very possibly, it could.   SNAP sales spikes can be large and short-lived.  Ignore SNAP and your product may not be available on the shelf when it's needed, losing sales opportunities.

Balancing safety-stocks across DCs

Earlier today I saw and responded to a question posted on the IBF (Institute of Business Forecasting & Planning) LinkedIn Group.  It's a question I come across often so I thought I would repost it here (with a few edits).

Question:  
How do I go about preparing an aged inventory analysis? I need to show fast moving,slow moving item, then I want to transfer product with in DC's that are slow so that the amount of SS is balance

Clustering with a destination in mind

I've posted before on Cluster Analysis, in an attempt to demystify one of the more accessible and useful analytical approaches for CPG/Retail teams (see Cluster Analysis - 101) .

Finding groups of similar stores (for example) can be a very effective way to manage the complexity of offering each store group what they really need without having to deal with each one individually, a mammoth task.   Whether you are looking to find groups of stores, shoppers, regions, products or even sales patterns a very similar approach can work for you.

Clustering is part of the journey it's not a destination.  If you don't know and understand what decisions your analytic work should enable  (your destination) how can you build a good model?