Action 3: Reduce safety stock levels
Too much inventory creates excessive discounting, obsolescence and write-offs. Too little inventory (or inventory in the wrong location) causes missed service levels and sales revenue. As they work to improve margins and offer value-added services, wholesale distributors must establish new methods for controlling inventory levels. Many are moving away from old approaches to setting inventory targets, such as holding two weeks of supply for all products at a location. Inventory planning, for example, sets inventory targets at a single location by taking into account time-phased demand signals and service level requirements. Another approach is multi-echelon inventory optimization (MEIO) which recognizes how inventory levels are interrelated between warehouses, DCs and other locations. MEIO models stock buffers across the network, and analyzes lead times, costs and many other factors. The system recommends amounts and placements of inventory to minimize inventory cost while achieving required service levels.

Action 4: Focus on buying inventory when it’s needed
In an industry that tends to be dominated by buyers, rather than planners, it’s no surprise the default driver is purchase price. With a broad inventory portfolio to manage, a huge number of SKUs and an orientation toward high stock positions, it is natural the emphasis is on buying at a good price. Procurement optimization automates the balancing act that buyers typically do manually delivering a more accurate and organized view of information such as how much supply is actually on hand, what has been ordered, as well as the status and lead times of incoming products. This allows the organization to make more informed decisions, such as assessing quantity price breaks based on dollars or points against how long excess inventory may have to be held.

Effective supply chain management is what often separates successful wholesale distributors from those that constantly struggle. Industry leaders have turned to advanced supply chain solutions to become strategic, demand-driven enterprises able to move beyond a focus on low price. Leaving practices such as rule-of-thumb inventory management in the past can reap significant competitive advantages. To realize these gains, you must move beyond spreadsheets and adopt integrated software tools that offer powerful organizing and planning features as well as the ability to model complex supplier constraints, uncertain demand patterns and multi-location inventory networks.