Optimizing Inventory Management for Smooth Operations

Discover the Importance of Inventory Forecasting and Allocation for Seamless Management

Marketing Team
Published on February 9, 2022

A stocked up and accurate inventory is a must-have for an efficient supply chain. Inventory Management is the first step to setting up a fully functional supply chain, it includes aspects such as controlling and overseeing purchases — from suppliers as well as customers — maintaining the storage of stock, controlling the amount of product for sale, and order fulfillment. Moreover, it provides clear visibility of transactions at every step with real-time updates, making business operations hassle-free. Every company's dream is to have an uninterrupted supply chain and a sufficient flow of commodities. When it comes to simplifying the supply chain, however, there are numerous elements that can cause disruptions, which is why we must exercise extra caution when managing our warehouse inventory.

What is Inventory Forecasting?

Inventory forecasting, also known as demand planning, is the activity of predicting required inventory levels for a future time based on historical data, trends, and known imminent occurrences. Accurate forecasting guarantees that firms have enough products to meet client requests and that they are not overstocking or understocking inventories. Inventory report forecasting takes into account replenishment data such as item availability, scheduling, and quick delivery. Customers, vendors, customer groups, vendor groups, vendor accounts, custom accounts, and item allocation keys can all be created and viewed in Dynamics 365.

Users can also choose the forecast model for each forecast line in Dynamics 365. The user can next choose the item or one of its groups, the transaction amount, the quantity, and the anticipated quantity allocation plan. Forecast planning helps you to determine material requirements, capacity, and generate planned orders for future use when you submit the supply-demand data.

With all of these components, the Dynamics algorithm demonstrates a balance between demand and supply for the given item. D365 does not allow users to make changes to their data once it has been entered. It's a useful tool for the inventory management team to keep track of forthcoming changes and accurately apply inventory solutions. Inventory planners may use forecast data with master planning in Dynamics 365, as well as bulk update forecast transactions, allocation forecast, inventory forecast, and view demand and supply forecast lines.

Here's an interactive infographic to help you implement the best forecasting strategies and keep your inventory current.

Optimizing Inventory Management for Smooth Operations

What is Inventory Allocation?

The technique of carefully tracking inventory levels across a distribution network is referred to as inventory allocation. Stock levels and storage costs can be optimized with proper inventory allocation to fulfill client demand efficiently. Allocating stock to key customers can help ensure that service levels are maintained and key accounts are retained, while also maintaining that additional supplies are assigned to customers to fulfill their demands, minimizing disruption and potential stock-out situations. After inventory forecasting, proper allocation is important to guarantee full-proof inventory management, even during peak seasons. Dynamics 365 provides three types of allocation methods:

  • Automatic Allocation: The scheduler, which runs every night, calculates the reservation automatically. New products are immediately assigned to the most urgent orders when they arrive. For MTO flows, arriving products are initially linked to outgoing shipping in an MTS flow. When the scheduler assigns products to order, the delivery order moves from "Waiting Availability" to "Ready to Deliver." Managing SKUs that sell at various rates across a distribution network can be difficult without the right processes and technology in place.
  • Manual Allocation: Some organizations choose to monitor and track inventory levels by hand. Manual inventory management entails using physical inventory ledgers or spreadsheets to make physical distribution decisions based on the manual data. In manual items, the allocation user is given a list of available warehouses for work. The sites will be sorted by available quantity in ascending order.
  • Automatic and Manual Allocation: The system recognizes the leftover items and automatically reallocated for automated or manual listings. If none or only a fraction of the quantity can be automatically reallocated, this step will be skipped, and human reallocation will be started instead.

Why Do Ecommerce Businesses Need an Inventory Allocation Strategy?

Knowing how much eCommerce inventory you need and how much you can keep based on space and cost in each warehouse location is a guaranteed method to optimize your supply chain. By optimizing inventory levels without overstocking or understocking sufficiently to satisfy demand, proper inventory allocation can save you a lot of money on storage costs. Inventory levels fluctuate frequently in eCommerce, especially if you sell through many channels, which is why Dynamics 365 utilize technology and automation to track inventory in real-time, allowing them to stay informed while spending less time manually tracking inventory. A well-thought-out inventory allocation strategy that is tech-enabled or automated and provides actionable information can help you decrease risks and streamline your distribution network. Here's a quick recap:

  • The Risk of Overstocking

Ordering more goods than you should need is a simple way to meet consumer demand. However, "simple" isn't necessarily the most cost-effective option. Overstocking, in fact, can quickly increase the costs of warehousing, labor, insurance, and rent. Additionally, when inventory sits on the shelf for too long, the value of damaged expired, or out-of-date products, known as deadstock, depreciates. Furthermore, if you allow the warehouse to keep the dead products for an extended period of time, you risk incurring excessive holding fees. You should be smart in how you optimize inventory levels to avoid overstocking by looking at past order data, inventory turnover, and other inventory trends.

  • The Risk of Overselling

In an eCommerce platform, customer experience is one of the main concerns to keep the supply chain seamlessly working. With the help of inventory forecasting, you can predict high demand before time, and you don’t want to experience backorders at that point. Backorders aren't usually conducive to a positive customer experience. It forces the shopper to determine whether or not they are willing to pay in advance and wait longer for their purchase. A split shipment can occur when a customer wants to buy the product along with other in-stock items, but you only want them to receive the part of the order that is currently available. However, it may result in greater delivery costs and waste packaging. It's critical to keep track of any potential spikes in orders, which could occur due to seasonality or promotional efforts, so you can ensure you have enough safety stock on hand based on prior order trends and future plans.

  • Efficient Omni-channel Management

When you expand into new sales channels, inventory allocation becomes more complicated, which is known as multichannel inventory management, or the control of stock levels, reorders, and inventory forecasting across many sources. Inventories management software can assist ease hassles by tracking inventory in real-time throughout an omnichannel sales network.

Factors to Consider When Allocating Inventory

When it comes to inventory allocation, each eCommerce business has its own set of requirements. Inventory allocation will help you maintain supply chain efficiency regardless of the size of your company. Here are a few things to think about while allocating inventory:

  • Inventory Demand

One of the most effective strategies to distribute stock and satisfy demand throughout your distribution centers and channels is to use demand forecasting. Demand forecasting or Inventory Forecasting as discussed earlier can also assist you in making better decisions in other areas of your organization, such as when to launch a product promotion or hire additional employees. As a result, when allocating inventory, keep the expected demand in mind. If demand is high, more inventory should be allocated, and vice versa.

  • Availability of Inventory

One of the most important aspects of the order fulfillment process is ensuring that products are stocked near your clients' shipping locations. You won't run into complications during the fulfillment process if you keep track of inventory availability. Implementing technology to track inventory as you expand into new markets and distribution channels will help you save time and build a more efficient supply chain. You might use an inventory tracking system that connects to your online store and allows you to see all inventory products, fulfillment facilities, sales channels, and customers to avoid fulfillment issues.

  • Availability of Warehouse Space

It's crucial to think about how much warehouse space you have and how much it costs. Some companies store products and fulfill customer orders from their houses until they run out of room. In this instance, working with a capable 3PL to keep your inventory in one or more fulfillment centers near your clients is more cost-effective. Storage costs can range from per unit or per SKU to a fixed fee for each shelf used, or even per square foot of storage fulfillment center space.

  • Ease of Order Fulfillment

The speed with which orders are filled and the expenses connected with shipping orders are influenced by inventory allocation. When it comes to inventory allocation, where you ship from is crucial. Customers are used to quick and low-cost delivery, and if a company fails to meet these expectations, it may result in a greater cart abandonment rate. Lower the number of shipping zones through which your average product goes to reduce shipping costs and last-mile delivery times. This can be accomplished by storing inventory in multiple geographic areas, allowing you to provide more delivery options, also consult the list of the best distribution KPIs.