FEATURE
Inventory: think lean when it comes to stocking up
part 2 of 6

In the previous issue of the RockySoft newsletter, we began a six-step series on lean inventory management. This series concentrates on transforming inventory from a liability to an opportunity to actively drive down the cost of doing business and positively impact the bottom line. Before we touch upon step two, let's review step one which covered the basics of stocking strategies:

1. Stocking strategies include product demand and randomness.
2. Randomness is the key element of the demand stream that can lead to stock outs or excessive inventory.
3. Identification of a product's unpredictable component (randomness) can be incorporated into a stocking strategy to offset the risks of forecasting error.
4. A 30 percent reduction of inventory can be realized when a company combines safety stock (SS) or reorder point (ROP) levels with the predictability of the demand stream.
5. Automated forecasting software is a tool to generate future demand streams based on past history and incorporate market insight. In addition to forecasting it should also create recommendations for safety stock quantities and reorder points at an optimum level.
6. Large returns can be achieved when lowering the forecast error for long lead-time items. The trick is to use the right inventory management software package to help planners acquire accurate levels of inventory and alert them when inventory levels become out of sync and need adjustment.

Step 2. The right amount at the right time
The second step in the quest for leaner inventory is managing the purchasing process. Each purchasing decision boils down to this: ordering the right amount at the right time.

Right Amount. To begin, a buyer needs to find out all the factors associated with carrying and ordering inventory. Each factor or variable added to the decision-making mix helps to improve the purchase-making decision as randomness is eliminated and solid data is put into place. Take a look at these examples:

• Inventory carrying costs
• Volume price breaks
• Vendor minimums
• Freight costs
• Freight restrictions (full containers, pallets, etc.)
• Forecasted Demand

These are just some of the factors that drive inventory costs up or down. Depending on the business or industry involved, the list can grow to include other important details.

Now, when considered separately, these factors are ineffectual. But when bundled together and analyzed against each other, a buyer will discover that each factor can affect the other positively or negatively. For example, when a business orders a large quantity of product to get a great price break, it changes the carrying cost of that product because more warehouse space is needed for a longer period of time. The question arises: Should such a large order be made to receive the price break, or has warehousing a greater amount of product cost so much that the benefits are void? The answer comes from basing the purchasing decision on quantifiable statistics --- not a "hunch." In turn, by using quantifiable statistics a buyer can positively affect the company's bottom line.

Time to automate: Automating the Purchase Order Planning process will insure that the correct trade-offs are continually being made. The more information that is evaluated, the better the buying decision is going to be. On the other hand, the more factors that are added to the mix, the more complicated the buying decision becomes. Automating the business process of economic analysis will insure that each economic factor is taken into account.

Right Time: Timely receipt of goods from suppliers is essential for maintaining proper inventory levels. Late or early delivery of product contributes to a gap between the supply and demand for products. This gap exposes a company to stock outs and excess inventories.

There are two primary factors that impact the timely receipt of goods: a forecast of demand for product and suppliers delivery performance. Too frequently, a company uses a Band-Aid approach to cover up inaccurate or in some cases the absence of a forecast and poor supplier performance. The Band-Aid approach generally takes the form of higher inventory levels

A forecast of demand will assist the buying organization by providing a target of demand by period. A forecast of demand is especially important in the case where the lead-time to procure product is lengthy. This will help them create a supply plan, aka replenishment plan, that will place the right amount of inventory in the warehouse at the right time. The more accurate the forecast the fewer inventories needs to be carried. Reliable supplier delivery is of paramount importance for maintaining customer service objectives and low inventory levels. An early delivery of product will build higher than necessary inventory levels. A late delivery will expose the organization to potential stock outs of product.

Warning: A company should not have to "over order" because a supplier cannot be trusted to deliver on time. Consider measuring supplier performance and providing them with strong feedback so they can correct their own problems with a quality improvement process. The more information you can give a supplier about their performance and your anticipated purchases, the more power they have to adapt to your needs.

Opportunity: Provide the purchasing staff with the best information possible for making buying decisions. Establish a demand planning process that drives more accurate forecasts. Focus on the supplier and their delivery performance. Free your buying staff up so they can being working on strategic activities that lead to better supplier performance, prices, and delivery cycles. This will assist in reducing inventory and improving or maintaining high fill rates. All together, these changes should lead to enhanced profit and an enabled buying organization.
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ROCKYSOFT SPECIAL INVITATION
Seminars
Inventory Management Workshop
RockySoft and Lean Learning Associates have teamed up to deliver a hands-on inventory management workshop designed specifically for distributors and manufacturers. This 15 hour workshop delivers both education and training in the concepts and application of science-based inventory management methodologies for supply chains. Workshop participants will gain an understanding of what the various methodologies are, why they are effective, and how to apply them back on the job. We will cover many topics in both a lecture format, as well as hands-on, interactive simulations.

• Improve Customer Service
• Reduce Inventory
• Gain a firm foundation in inventory management
• Develop skills to achieve company goals and objectives

If you would like more information about this seminar, please call Jeffrey Porter toll free at 1-877-277-0868 ext. 105. If you call before July 15th, we will offer you a 20% discount on the cost of the seminar. Satisfaction Guaranteed!

RockySoft Special Invitation
Would you like to co-host an "Effective Inventory Management" seminar with RockySoft in your city? It's easy and it's free for your guests (clients or prospects). Previous seminars have been well attended and generated applause from attendees.

Our seminar will focus on.

• The first steps to inventory control and management
• Inventory and its relation to customer service level
• Forecast and Replenishment methodologies

Guests are entitled to an optional one-hour consultation with RockySoft at the conclusion of the seminar. We also will perform a comprehensive Inventory Analysis on the participant's entire stock for $1,500, a 50% discount off normal charges. For more information or to receive a sample invitation, contact Jeffrey Porter toll-free at 1-877-277-0868, ext. 105, or jporter@rockysoft.com.



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WHAT'S NEW
Professional Services
RockySoft is now sharing its knowledge with clients, prospect and partners alike. We have begun offering seminars that feature the methodologies and inventory practices we have mastered with years of working in the industry. Our most popular training is our Inventory Management Workshop, which trains key purchasers and operations people in inventory methodologies that they can use on a daily basis to meet company standards. Although the seminar is not based around the RockySoft solution, we have found the training useful to new clients who want to establish a firm foundation in inventory management to compliment their training and implementation. We also find it helpful to VARs working in the Microsoft Great Plains channel for themselves and many of their customers that they work with.

"I enjoyed the training very much and learned a lot. The exercises not only enhanced the learning experience, but also provided an opportunity for team building and working together. Overall, the training was very interesting, informative and fun; I would recommend this to any company trying to improve inventory practices." - Mary Finley, Training Specialist ~ Road Town Wholesale

Welcome:
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Ecount - Ecount is a leading provider of electronic payment solutions. They deliver products and services that enable organizations to easily and electronically move cash to employees and consumers in order to motivate, compensate and reward. They also offer special purpose payment products that meet specific consumer lifestyle needs.

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PRODUCT HIGHLIGHT
Demand Collaboration Portal

Demand Collaboration Portal (DCP) is an expansion module to Demand Manager that puts a forecasting tool in the hands of sales representatives and account managers - the people closest to your customers and most in-tune with their needs. DCP provides the sales force with automatically generated forecasts based on three years of historical data, and gives them the ability to actively manage their accounts with a more hands-on approach. This newly updated program in our software package is more efficient and user friendly than ever, and allows individual sales representatives to modify forecasts based upon the one-one information they receive directly from their customers.

Not only is this tool a valuable resource for individual sales representatives, but also for sales directors and operations managers. Ideally, in creating a sales forecast, a company would like to sit down with each of its customers and discuss their projected demand to attain perfect figures. DCP is a tool that provides a time efficient means for coming as close to that goal as possible. With DCP, sales representatives input personalized estimates for each customer based on their working relationship. These forecasts are then viewable by those in charge of producing company-wide forecasts for financial and operational plans. Ultimately, DCP allows everyone from account managers to purchasing agents to be on the same page in regards to forecasted demand.

Visit http://rockysoft.com/downloads/Data_DCP_05.pdf for a whitepaper on DCP.

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MARK YOUR CALENDARS
July 8-10, 2005 - Microsoft Worldwide Partner Conference Minneapolis, Minnesota
Welcome to the Microsoft Worldwide Partner Conference 2005, a global community of Microsoft partners focused on achieving the next level of business success. This worldwide meeting of the minds puts you in a unique position to investigate the important issues facing your business today. By coming together to create an intelligent network of shared ideas, Microsoft partners will be better positioned to take advantage of the rapid changes in the global economy.
More Information: www.MicrosoftWWPartnerConference.com

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