Most companies develop plans and goals each year to improve inventory performance – their inventory turns, reduce their inventory by x dollars, reduce lost sales by x percent… but they have difficulty each year actually achieving this. We believe that you must measure your inventory performance on key supply chain analytics to know where you are now, and then have systems in place that allow you to adjust your desired service levels, and calculate simulated results of your inventory levels, inventory turns and other key metrics. By using a system like Thrive’s for inventory analysis, you can adjust the throttle and the system ratchets inventory up or down based on your desired service levels.
How the Thrive System Increases Turns:
1. Typically, many items are overstocked. Buyers use their subjective intuition based on Increase Inventory Turnoversexperience and company philosophies. Even though everyone realizes that there are certainly costs to carrying inventory, most companies would prefer to carry more weeks of supply of inventory rather than to stock out and lose sales.
2. Most academics and inventory practitioners calculate the carrying costs of inventory to be between 20% and 30% of the inventory value in dollars. For most companies, millions of dollars in working capital is tied up in inventory unnecessarily which reduces profitability and cash flow. But in lieu of a smarter way to manage the inventory, most companies have come to accept these costs as a given.
3. However, if an intelligent system designed to support distribution and retail buyers automatically crunched the numbers each night, carried the right amount of stock for each item to support company service level goals, and helped buyers proactively prevent stockouts and overstock, the overall inventory would go down and sales would go up, increasing inventory turns.
4. The Thrive system does exactly that, reducing aggregate inventory dollars relative to sales. The system is designed to buy the proper quantities for each individual SKU based on its upcoming demand, seasonal pattern, lead time, sales volatility, pack sizes, EOQ, and many other variables that are taken into consideration.
5. Thrive automatically replenishes inventory levels by item based on projected demand and optimized safety stock. It alerts buyers every day to current stock outs and identifies items that may stock out in the future so that they can react quickly. Thus lost sales due to stock outs are significantly reduced.
Although it increases inventory turns, more importantly, it automatically enables the buyers to stock the proper levels of inventory for each item. Thus Thrive also increases service levels and fill rates. Since Thrive's system is easy and fast to implement and starts working for your company incredibly fast, our customers are able to see an improvement in their inventory performance almost right away.
To learn more about Thrive and to schedule a free demo, click here.