Inventory forecasting is a complicated problem for retailers and distributors who need the right amount of product available to consumers at the right time. Obviously, having a true zero inventory won't work in reality but implementing the zero inventory strategy can save big dollars in supply chain inventory management. This strategy frees up working capital to test market new products being released to the marketplace or whatever is the biggest priority for the business at the time. Having millions sitting in a warehouse months before they are needed is not wise money management in the world of inventory management.
The zero inventory strategy implies that having the least amount of inventory in the warehouse when shelves are fully stocked means the least amount of company funds are tied up in unsold inventory at any given time. The only way to set a minimum inventory is to analyze current market trends and projections based on performance.
Analyzing the amount of data required to implement a near-zero inventory strategy is enough to boggle the mind -- but not the computer's CPU. Demand optimization software does the analysis of required to make smart inventory investment decisions.
By assigning target customer service levels by individual stock item, the sale ranks and profits can be taken into account as well as demographics and other factors. Automated calculations project the best inventory level for each item being analyzed to ensure optimal backup stock is available without overstocking.
Lead-time is an important factor in inventory management. By taking into account lead-times based on past performance of manufacturers and shippers, it is possible to really zero in on what the minimum smart inventory level is for each product.
The demand optimization software even takes into account issues easily missed in human analysis such as vendor account restrictions, minimum order requirements, best deal offers and all other factors provided to the software to quickly determine the best inventory level. The same process would take a human hours but the software application allows the computer to return an accurate answer in milliseconds.