Let’s say you’re moving into a new home, and you want to keep track of all your furniture, books, housewares, and other stuff in order to make the moving process more efficient. What’s the first thing you do. Well, you might start be creating an Excel spreadsheet to create a register of the all of the items you’re tracking. As you pack them into boxes and earmark them for specific trips to the new place, you add that information to the spreadsheet, so that you’ll be able to access it later. Once everything has been moved, you use that spreadsheet to make sure you haven’t missed anything and to try and unpack in the most efficient manner.
If you’ve got a modestly sized home, this method will probably suit your purposes pretty well. But at a certain size, your system might break down—or at least contain so much information that it becomes unwieldy. And what if someone at your moving company wants access to the spreadsheet to get useful information for how to best load the truck? What if you suddenly realize that there are a number of items you actually want to sell or donate—how hard would it be to rejigger the spreadsheet to that purpose?
At the end of the day, you probably don’t need to worry too much about those things—but it’s easy to see how you could start to run into problems as you scaled up your operation. And yet, for many professional inventory planners, those challenges don’t prevent them from relying on Excel.
Challenges in Inventory Planning
When you’re dealing with a small inventory project on your own time, a lack of visibility or connectivity isn’t a huge deal. But when you’re dealing with the same set of problems for a large industrial operation, these same pitfalls can cut into your ROI quite quickly. Why? Because the challenges that face inventory planners on a daily basis are all dependent on visibility, connectivity, and transparency:
- First things first, you need to accurately track all of your inventory. This is the kind of baseline functionality that a spreadsheet will offer, but if your parts or finished goods are moving in and out of the warehouse rapidly, it may become tricky to track things without some kind of digital technology.
- Next, you need to align your inventory with customer demand and corporate strategy. If you’re trying to go lean, this means finding a way to be hyper-responsive to small changes in demand; this requires a feedback loop between production and inventory, for which both touchpoints need easy access to one another’s plans and data.
- Finally, you need to integrate inventory plans with longer-term goals—e.g. if your business is hoping to expand you need to figure out how much additional space to pay for, how many additional pallets and containers you need, etc. To find numbers here that are more than just shots in the dark, you’ll need to perform sophisticated predictive analytics, a process that can be difficult without the proper tools and an abundance of data.
In short, because inventory is so intimately connected with other touchpoints like production and logistics, optimal performance requires a complete overview of, and deep insight into, the entire value chain.
How Advanced Analytics and Digitization Can Help
Okay, let’s say you’re convinced the an Excel spreadsheet isn’t the right place for your inventory planning. What are your alternatives? How can you adjust your planning and data management processes to better integrate inventory with related processes? As with so many things in the modern era, it begins with digitization. By transitioning from a spreadsheet to a digital module with a decent user interface that’s accessible to multiple users, you can easily overcome the transparency hurdles we mentioned above. Instead of inventory plans and data being siloized, any stakeholder can simply log on to the system, collect or update relevant information, and incorporate that into their plans going forward.
Not only does moving to a transparent, highly-visible digital process help you to ward off visibility-related disruptions, it also gives you a strong foundation for more value-additive processes. For instance, if your inventory planning solution is connected to other solutions across the value chain, it can automatically import data from, say, production planning in real time. Using that data, you can run advanced predictive analytics that give you hyper-accurate estimates for your immediate-term inventory needs, enabling you to reduce buffer stock without incurring undue risk. By the same token, you can use advanced prescriptive analytics to analyze your current inventory layout and speed up loading and unloading processes.
Inventory Planning 4.0
The digital improvements we described above can have a big impact on your bottom line purely by putting you in a position to be more efficient and more responsive with your inventory planning. But this added efficiency isn’t the last word in digital improvement—far from it. As we begin to move more firmly into the Industry 4.0 era, these kinds of digital enhancements will be a prerequisite for creating the kinds of smart, connected workflows that are expected to transform the way the supply chain operates. What might that look like in practice? Well, it might mean that your inventory management platform receives real-time dataflows from IoT devices on your factory floor, enabling it to automatically monitor production flows and place recurring orders on its own to keep stock levels at the optimal level.
This would greatly reduce the amount of minute human effort required, freeing up human inventory planners to run simulations on their inventory flows to test out new ideas for process improvements, or for rolling out new strategic initiatives. As this technology becomes more sophisticated and more thoroughly integrated with other touchpoints, the need for human intervention will drop even further, resulting in manufacturing outfits that are more efficient not just in how they use space and production resources, but in how they use human resources as well. In this way, we begin to approach something like Inventory 4.0, in which the cumulative advances of digital and analytical technology turn inventory management processes into smart, responsive, truly value-additive workflows.