Managing inventories in the digital age is even more challenging than with traditional supply chains. Inventory policies and processes established for volume sales and bulk shipments for a multi-tier network are ineffective when positioning stocks for fulfilling online orders for items, “eaches”. Demand planning and inventory planning systems must be modified to accommodate intermittent, varied demand, and the increasing uncertainties that characterize eCommerce.
With distributed logistics the deployment of inventories closer to customers, the challenges are exacerbated. In discussions with dozens of internet sellers we found many are concerned about inventories expanding to “fill the added space” that distributed capacity provides. Beginning with initial allocations and continuing with operations, the business objective of inventory optimization is complex and thus illusive.
It is this varied concern that led us at MonarchFx to search for and configure leading software to enable sellers to manage distributed inventories based on flow, rather than traditional methods for EOQ, safety stock, and other inventory planning policies. We also sought leading edge software to forecast demand for inventory planning and management to better match supply with demand in the digital world. Overall, we sought leading edge tools for inventory allocation and replenishment efficiency, as well as to improve the estimated 74% of all inventories reported to be accurate, a number that has shown up in recent surveys.
Distributed Inventory Flow Forecasting (DIFF)
We found excellent basic systems for this purpose at Vanguard Software Corp. In partnership with Vanguard, we have configured DIFF for eCommerce with distributed logistics.
The capabilities of Vanguard/DIFF are quite impressive and include:
- 32 different demand forecasting algorithms
- 12 different inventory management policies (including flow)
- Forecasts and manages at SKU-level, product/brand level, assortments, or category
- Both sales and inventories are viewed on the same screen
- User-driven events such as new products, seasonality, promos, flash sales, mark-downs, weather issues, competitor actions, etc.
- Provides dynamic replenishment “signals” when stocks fall below their pre-determined thresholds, based on lead/transit times for each SKU of product
- Readily integrated with ERP and/or WMS/DOM/OMS systems
- Visible KPI’s and dashboards
- Ability to apply advanced analytics (descriptive, predictive, and prescriptive)
- Ability to conduct simulations and manage risks
- Capability of handling Unichannel inventories
In addition to DIFF, the MonarchFx team has developed other capabilities to support and optimize distributed logistics. Subsequent blogs will detail each of these capabilities and describe how they work together in a comprehensive system to enable inventory optimization at each MonarchFx facility.
The Seller Value Proposition
Engaging MonarchFx with the DIFF model provides sellers several high value benefits including:
- Reduces the working capital required for inventories
- Reduces the cost of carrying extra inventories
- Increases the ROI and ROCE from forward positioning of the right stocks and levels
- Achieves revenue gains from positioning the right stocks closer to customers
- Minimizes the storage space required at MonarchFx fulfillment centers
- Helps enable the achievement of perfect orders measured by orders fulfilled correctly, on time, and with correct documentation
- Analyzes purchasing patterns and sharing data with sellers, enhancing demand and supply planning
- Enables effective management of returns
- Enables efficient replenishment plans and schedules
We will continue to write about the capabilities of DIFF that help optimize distributed logistics.