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Racks and stacks of monetary bills.  Some on pallets, some on containers and some on the road.  That is what you should see when you enter into a warehouse or distribution center. A wise man once said, ” Money saved, is money earned”.

That money, or precisely your working capital, is just sitting there, unproductive, not being used to fund required projects, resources, tools & technologies. So how do you free up those capital funds from their confinement?  And how do ensure you don’t run into a stock out situation at the same time?  The IBP inventory optimization module provides a new level of simulation and functionality never before available with an SAP suite of tools, released till date and in my opinion, it has the potential to unlock those blocked capital faster than any other investment you can make.

Volatility is the Panic Factor

Why do you need this inventory in your supply network?  The obvious answer is to protect against uncertainty.  It is the enemy of every well-run supply chain. Even automobile companies, today have started planing with MTS (Make to Stock) scenarios for their best selling models.  While you can’t eliminate all this factor, you can protect yourself against the uncertainty it brings.  This insurance comes at a cost, hence the pallets of fund sitting in those warehouses.  Identifying the specific locations and products to store inventory to protect against the volatility is the trick, and that is where IBP inventory optimization comes real handy.

IBP inventory optimization module provides  a platform to identify, model and simulate different situations.  This helps in achieving a tactical balance for your supply chain efficiency rather than a levered approach for improvements.  If you know exactly which factors influence the movement on inventory, you can go after those pain points and focus inventory built up where it makes the most sense.

Simulate, re-simulate and re-simulate

Blindly faith in the first result, from an inventory optimizer is a good way to screw up the inventory policy.  Irrespective of  what you do, it will be an adjustment to the current inventory policy.  The key is to be slow and steady like a tortoise. SAP IBP InventorySpent time to understand the inputs, find the differentiation factors, set threshold and proceed accordingly.  In general change and trust are slow moving in nature, especially when you’re playing with factors that directly impact customer service.  So trust but verify, go in a pilot launch mode and develop a plan that does not shift the status quo when go live occurs.

Learn to Speak  the monetary language 

Inventory is nice, but cash saving  gets lot more attention.  Inventory means money that can’t be used for useful things, like investments, operations, salaries, etc.  Every amount kept in inventory is a trade-off for capital that can not be used for anything else.  So it’s critical to keep that investment at a bare minimum.

When tapping opportunities, it is key to identify those savings, not in “Days supply” not in “Projected Stock” but money value.  Money talks, and stakeholders listen.  So ensure that the value is communicated effectively in monetary terms.

This also allows for opportunity identification that are not on top priorities . Speaking in terms of “Days Supply” focuses attention on the finished goods.  But perhaps the real opportunity is in raw materials  or semi finished goods.  Speaking in money easily quantifies these untapped opportunities in a common language that projected stock may not.

IBP’s  beauty is, in its bi-lingual capability in supply chain and finance, which means those discussions in money are derived in a single click.  Do your analysis in any UOM and it share in Dollars or Euros.  That’s IBP.

Inventory is money, and that is why, it is the business case of IBP. However, it’s important not to over commit. Inventory optimization is a complicated process, and you need to build upon confidence in the systems before making a over enthusiastic jump.  Do it precisely and free up working capital.

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