The Forecast Bias Profile reveals SKU by SKU the deviation of the forecast from perfect. An ideal forecast bias profile has the large majority of the SKUs close to the Perfect Forecasting Line (0% error line) and about half the SKUs above the line and half below the line. The Forecast Bias Profile for a large consumer products company revealed a significant number of SKUs with forecast errors well beyond normal control limits and a majority of the SKUs with overestimated demand. When asked about the results, the client shared that during the previous year the inventory control group had indiscriminately cut safety stocks for all SKUs and that the sales group was nervous about service levels potentially declining. To compensate, the sales group began indiscriminately inflating forecasts.
Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their...
Efficient procurement inventory (EPI) is often required to realize steep discounts when a special opportunity...
The inventory carrying rate (ICR) is the percent of the unit inventory value used to...
Suppose you were sick and went to the doctor for a diagnosis and prescription. When...
Inventory performance measures include financial, productivity , quality, and response time indicators for evaluating the efficiency and...
Forecast Bias Profiling
We frequently find it helpful to identify and rank order root and systemic causes of excess inventory. An example completed for a large HVAC client is depicted below. In this case the root causes in
The RightStock™ model also distinguishes between value added inventory (VAI) and excess, non-value added inventory (NVAI). Value added inventory is the sum of safety stock, lot size, and pipeline inventory. Those three types of inventory
Hedge inventory (HI) mitigates risks of potential sharp price increases, shortages in critical commodities, and extreme price and availability volatility for those same items. Fuel is a classic example of a commodity whose inventory may
Contingency and disaster inventory (CDI) insures against unexpected situations outside the realm of those covered by traditional safety stock inventory. Those situations include natural disasters, labor strikes, and other abnormal supply chain disruptions. For example,
The shortage factor is the % of an item's unit selling price (USP) that is lost in the event of a stockout and subsequent lost sale. It is used to compute the lost sales cost. For example, if the
Setup cost (SUC) is the cost to setup (prepare or changeover) a machine or production line to make a production run for a particular item or change between items. It is sometimes referred to as changeover cost (COC).
The purchase order cost (POC) is the cost of placing a purchase order from a vendor. The majority of those costs are related to sourcing, purchasing, and procurement salaries and benefits (italics) and include: Purchase
As a part of the National Science Foundation’s Japan Technology Evaluation Center I had the unique privilege to lead a major study for the U.S. government comparing U.S. and Japanese logistics systems. During the study
There are two conceptual models for inventory management – push and pull. The push inventory model is so called because the emphasis is on "pushing" speculative inventory, made-to-forecast (MTF) in response to forecasted demand, out
Order status communication should be proactive when there is an exception to the order contents, timing, or terms agreed upon at order entry. Order status information should be updated in real-time and should be available