Cutting Inventory Costs With Anaplan
Either because the items in our inventory are costly, perishable, central to our business, or for any other reason, a proper stock planning always pays off.
Could I cut down my inventory cost by a million pounds with Anaplan? The answer, of course, is “yes”. Ok, you are right: it is rather easy to cut down inventory cost!
So, let me rephrase it to answer the question you are really asking: “can I release working capital from my inventory while maintaining my desired customer service level?”
And the answer is still “yes” (unless you are planning your inventory perfectly already).
It is not a secret that to cope with today’s intense competition and demanding customers, supply chains in medium and large companies have a lot of moving parts that introduce a good deal of volatility and uncertainty into the inventory planning process.
Simplified representation of some of the “moving parts” across a Supply Chain Network which can impact on the calculation of the total Safety Stock
Before reviewing in more detail how Anaplan can help you to deploy a Multi-Echelon Inventory Planning Model to deal with that uncertainty and reap nice returns on the investment – which we will do it in as little as four minutes - here is a real-life story to illustrate “why” such a solution could be very beneficial.
One Too Many Engines
I recently met in London a supply chain manager from an airline company. During our chat, he asked: “Can an inventory model save me an engine?”
Airlines have a vast inventory of spares. Some of them are just bolts or armrests for the seats, but other items in the inventory, such as new engines for their airliners, are more mission-critical and entail greater financial commitment.
Due to this need for categorization of the stock based on size, cost, replacement rate, or importance, and because of the variability in the volume of flights and type of airliners flying to different destinations across the seasons, the airline company were in need of a responsive and transparent way to plan quantities and locations for their inventory of spare parts.
At this point, it is easy to imagine that the lack of responsiveness and visibility led them to overstock in order to ensure the desired service level, especially for all the most critical spares, such as the engines.
Since the cost of one of these engines is in excess of £1m pounds, think of the great return that a reliable and transparent multi-echelon inventory planning model could boast if they could only optimize the stock as the landscape changes and, as a result, reduce the amount of engines by one single unit!
Either because the items in our inventory are costly, perishable, central to our business, or for any other reason, proper stock planning always pays-off.
One Too Few Engines
I know what you are thinking. And you are right. In my story, the cost of falling short in engines is higher than overstocking.
We use the story above as an example—although it is real—of how a company can incur significant overstock in order to avoid disruptions in their operations, and also because it illustrates the importance and potential returns of optimizing your stock.
But, indeed one too few engines could lead to canceled flights and harming the brand’s reputation. This is why the first (out of two) operative word here is: “optimization”. This is how Olivehorse’s multi-echelon inventory planning model brings value by not just cutting down your inventory but optimizing the quantity throughout the network to ensure a given service level.
There are not too many and not too few. There is just the right amount in the right place.
So, what is the other operative word? “Transparency”. It's the ability to track how you ended up with the amount of optimal stock that the screen of your computer shows and put trust in your data and plan your business accordingly.
In this community, we quickly got accustomed (we all like the good stuff!) to Anaplan’s transparency and flexibility to introduce and track all sorts of changes in the values of the calculations.
But let me remind you that other inventory planning solutions can be rather cumbersome and opaque and can produce results that are accepted as being gospel due to the rather high degree of secrecy surrounding the algorithm used.
More From Anaplan:
- The Three Duties of an Anaplan Project Team
- Is Anaplan's New User Experience Right for My Organization
- Transforming IT Project Planning for CIOs
Multi-Echelon Safety Stock Optimization Model
Let’s wrap this up: how can Anaplan help you?
Olivehorse inventory and Anaplan practices have released, in conjunction with the multi-echelon inventory planning model, to broaden Anaplan’s offer of solutions for supply chain, achieving the potential benefits, and overcoming the shortfalls from the legacy solutions.
In order to deliver value to any company holding stock, the model complies with both Anaplan’s best practices (to release the platform’s unique computing and collaboration capabilities) and the industry’s best practices when it comes to the processes and algorithm used to determine the optimal safety stock.
Here are the main benefits of Olivehorse’s multi-echelon inventory planning model in Anaplan:
- Accurate: Best-in-class algorithm to calculate safety stock amounts.
- Detailed: Safety stock calculation per product and location.
- Transparent: You will know exactly which variables impact on your safety stock.
- Dynamic: Run as many scenarios and what-if analysis as needed.
- Immediate: Run new calculations, scenarios, and re-plan in real-time.
- Ready: Off-the-shelf model ready for a fast parametrization and deployment.
- Scalable: Add new functionalities and customize your solution to meet your needs along every step of the way.
- And most importantly, the proof is in the pudding! Achieve high ROI either by improving customer service, reducing safety stock levels, or even both! Here is the latest study on Anaplan’s ROI. https://www.anaplan.com/papers/forrester-total-economic-impact-2019/
The beauty of this community is the active engagement of its members and their Anaplan / business acumen, so feel free to share your thoughts, comments, and requests in the comments section below.
Interested in having a chat on how Anaplan can help you to optimize your inventory or boost your supply chain planning? Or why not book a Taster Session with Olivehorse? We’d be more than are happy to spend half a day with you to show you the value that Anaplan can bring to your company. Book your Taster Session now: https://inbound.olivehorse.com/anaplan-free-taster-session
Alejandro Gomez is Senior Anaplan Consultant at Olivehorse. He's worked with Anaplan for six years and has experience in Anaplan Implementations in different industries, countries and successful implementations in multiple lines of businesses. As a fully certified Master Anaplanner, Alejandro has witnessed first-hand the power of Connected Planning.
At Olivehorse, we are experts in Anaplan and supply chain management. Our depth of application knowledge and practical know-how, combined with an unrelenting focus on finding you the best, results-driven SCM solution, makes us unique in what we do.