Suppose we implement a few RightCast™ practices like forecast bias identification and minimization, individual accountability and dedication to forecast accuracy, back casting, and rapid error correction. In this case those practices helped reduce forecast error from 140% to 80% (Figure 1). What’s the ripple effect? (Figure 2)
As you would expect, less safety stock inventory is required to support the same target fill rate of 92%. In this case safety stock inventory value (SSIV) declines from $60,630 to $34,646; a savings of $25,984. Average inventory value (AIV) declines by that same amount. The resulting inventory carrying cost declines from $42,632 to $30,680; a savings of $11,953 per year. Inventory turn rate increases from 1.24 to 1.72; an increase of 39%. GMROI increases from 144% to 200%; a 39% increase. Inventory Value Added™ (IVA) increases from $90,768 to $102,721; a 13% increase. Inventory Policy Cost™ (IPC) declines from $49,112 to $37,160; a 24% decrease.
Is a 43% reduction in inventory investment; a 39% increase in inventory turns; an increase in GMROI from 144% to 200%; a 13% increase in inventory value added; and a 24% decrease in inventory policy cost worth the effort? Most likely. In fact, we have yet to conduct a project where there was not an overwhelming business case for pursuing a RightCast™ initiative.