your inventory
Digitizing
How “digitizing” radically increases the efficiencies and profitability of inventory buying.
By Rick Morris
Digitizing by its very definition is taking an “analog” process and turning it into bits and bytes. In other words, converting something tangible (e.g. a printed boarding pass) into a digital format such as a digital boarding pass on the airline app.
Consider the dramatic changes as travel has gone digital. Remember the days when it was almost entirely analog? It could take quite a while to plan a business trip, and it started with actually picking up a phone to call your travel agent or the airline. When you flew to a business meeting, you probably had to rent a car (and print the email receipt) even if it was only a one or two-day visit. You had to wait in line to get a paper boarding pass at the counter, until the major advancement of printing boarding passes at home. You even needed to print maps from Mapquest to find the client or meeting site. If there was an accident or heavy traffic, you didn’t know about it until you were stuck in it, and you had no way of letting your colleagues or client know.
Today, you can book a flight, select your seat and make a hotel reservation on your phone within minutes. You don’t have to worry about printing a map. If you are renting a car, Waze or another app will navigate you and even route you around traffic jams. If you use Uber, you can pull up TripAdvisor or Yelp to find a good restaurant near your client and take them to lunch. You can also check into your hotel from your phone in a minute’s time.
Travel has become less stressful and quicker to plan. Now, the traveler is more agile and informed to better manage the unpredictable nature of travel and change of plans that frequently occur.
1) Shortened planning time
2) Timely information to help make informed decisions in unpredictable situations (e.g. real-time driving directions, ETA of Uber driver)
3) Critical alerts of changes to the plan (e.g. gate change, delayed flight, rerouting around accidents)
Digital travel has given us huge improvements in:
However, in the world of inventory purchasing, we’re just getting started with digitizing. Most wholesalers are still doing “analog” buying, and inventory buyers still primarily rely on spreadsheets to supplement the very limited
inventory forecasting functionality in their Enterprise Resource Management (ERP) system. This antiquated process typically involves manually loading data into spreadsheets which buyers then use to manually analyze sales trends and availability to create order or transfer quantities. They then manually enter these recommended order or transfer quantities in the ERP system. Unfortunately, this process takes far more time than it should, doesn’t handle unpredictable situations well and doesn’t provide proactive alerts of changes.
In other words, wholesale inventory purchasing is still a long way from the travel industry’s digital transformation.
If every SKU sold predictably and there were never any changes to how items sold or changes to your supply, analog processes would work fine.
The issues with inventory buying are similar to the old issues with travel. What makes inventory management so hard for wholesaler buyers is that sales for most SKUs are unpredictable, and changes to those existing sales (and supplier lead times) occur every day — which would probably be manageable if you stocked 50 SKUs at one location. The kicker is that a multi-location wholesaler stocks thousands, if not tens of thousands or more, SKUs at multiple DC’s and branches.
Quite simply, a buyer doesn’t have time to monitor unpredictability and change across all SKU’s, clients and suppliers — and certainly not while using analog processes like an ERP system and spreadsheets.
Today, you can book a flight, select your seat and make a hotel reservation on your phone within minutes.
Similar to data intensive and change prone environments like travel, managing inventory benefits massively from digitization. Let’s compare:
Analog buying results in a costly lag in adjustments to inventory when there is change. Since analog buying relies on intensive manual review of a lot of data like sales trends, the buyers do not have time to review all SKU’s.
The opportunity cost for a multi-location wholesaler to continue analog buying is millions of dollars annually due to the heavy costs of lost sales and dead stock. A digital buying system analyzes all SKU’s at every location every day, looking for opportunities to prevent stock-outs and buildup of too much inventory. Instead of manually reviewing every single item from every vendor every day, buyers are freed up to do more strategic work like working with the vendors and branch and sales operations. For example, a digital buying system identifies items that buyers should discuss with the branch and sales managers.
For the owners and senior managers saying “Why don’t we just optimize our ERP purchasing module?” there are consultants in each ERP user community who can help apply best practices in your ERP purchasing settings. However, the ERP does not store all historical data points (e.g. prior forecasts, order overrides and lost sales) so the consultants cannot accurately root cause why lost sales or dead stock occurred. They can only guess based on current processes and best practice generalizations.
Now that you can travel much easier and more efficiently, would you want to go back to waiting in long airport lines for a printed boarding pass and manually getting directions without your phone apps?
Rick Morris is a Certified Supply Chain Professional and founder and CEO of Thrive Technologies (www.thrivetech.com), a provider of digital inventory buying systems to multi-location wholesale and master distributors. He can be reached at 770/222-8599, ext. 106 or at rmorris@thrivetech.com.
