If you are a distributor and still using a system that bases replenishment formulas on old forecasting methods, you will be pleased to know that a new system can most likely pay for itself in a very short time. Do you know the accuracy of your forecasts? Does your system provide that information?
Rather than lumping items into one or two forecasting formulas like the old system does, Weighted Average Forecasting determines the forecast formula for each individual item that has resulted in the smallest forecast error over the last several months. It determines which formula from a set of 17 different formulas that best fits the usage history of each individual item. It is a proven methodology for dramatically improving the relationship between sales and inventory levels. And as this relationship improves, inventory levels drop and sales usually increase. The result? A dramatic shift from inventory investment to cash, and dramatically improved return on assets (ROA).
How?
It starts with an analysis of your own inventory and usage data, first identifying dead stock (inventory that has not had any usage in the previous 12 months) and helps you determine what to do with it. Then the analysis proceeds with a ranking of items by Cost of Goods Sold to determine which items have more than a year's worth of on-hand stock (among other things).
The end result is usually the opportunity to take some remedial action that reduces your investment in inventory.
But then the real payback begins.
The Advanced Usage Based Procurement system in Microsoft Dynamics NAV will continue to determine the best forecast formula for each individual item, as well as identifying items with sporadic usage that cannot be forecast, so human judgment can be applied to those items.
This system can then keep your inventories low while maintaining (or even improving) sales levels, extending the payback indefinitely into the future.
For more information or to see what financial impact such a system might have on your distribution business, click on Contact Us and let's discuss conducting this analysis on your inventory data.