When working on projects at home, I quite often go to the shelf in my garage for materials. And quite often my projects are delayed right from the beginning. The simple reason: needed materials are missing and I need to visit my local do-it-yourself store. And most of my projects are at my wife’s request, so she is not amused at all.
In my role at SAP, I focus on wholesale distribution companies in Europe Middle East and Africa. How do our customers avoid running out of stock to be able to serve their customers – craftsmen, retail companies or whomever? If wholesale distributors have no material availability, they are going to lose revenue and eventually lose their customers – which is not good at all!
Another challenge: I have only a few items on my shelves. Most of our customers have between fifty thousand and a million items. I can check the availability of my screws, anchor bolts, etc. manually. Wholesale distribution companies could never do this. Everyone recognizes how important it is for distributors to have the right replenishment tool. It needs to perform at a high level to process the huge number of items, to have the right algorithms for different types of merchandise and to work reliably each and every day for years.
So how do wholesale distributors address this problem? They implement a forecasting and replenishment tool.
First, they need to know their stock situation. A non-harmonized system landscape with many sub-systems can cause trouble: interfaces do not always work properly and there is a risk, that stock situation is not up to date, which can lead to wrong order proposals. From my experience, a lot of distributors are
already struggling with this point. A fully integrated system is optimal.
Second, distributors need to predict what items will be needed to fill sales orders. A good forecasting tool allows distributors to review the complete sales history, including what has been sold in the past, and to identify a trend, a season or a seasonaltrend. With this information, the distributor can predict the future need.
Finally, a software solution needs to compare the current stock situation including existing purchase orders to sales orders that have not yet been fulfilled including the forecasted consumption. The gap between what is or will be available and the items that will be needed to fulfill orders can then be ordered from the supplier.
This sounds very easy, but anyone who has implemented a forecasting and replenishment tool knows that the algorithms can be complicated. A lot of fine tuning needs to be done to be sure everything works accurately.
In the future, I’m sure I won’t invest too much time on having 100% availability of screws for my home projects. Also in the future, I’m sure my wife will not always be amused. But it is important for wholesale distributors to invest the time and money needed to insure enough merchandise is available so that they lose neither revenue nor customers.