Six Steps Inventory Management

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Inventory is the consequence of many different strategic and tactical choices across an organization, and Inventory optimization is the science of making these choices more rational, profitable, and data driven. This proven methodology for inventory optimization developed by LOGIKO is designed to guide you through the „jungle“ of inventories and give you the direction (milestones) you need to reach the „holy grale“ - lower inventory levels while respecting service levels and minimizing risk of losing sales.

How do you know how much excess inventory you are carrying right now?

Learn the current value of your inventory, how much obsolete and overstocked inventory you have and the increased profits you could realize by optimizing your inventory!

Our Free Inventory Optimization Review evaluates your current inventory, historical sales and inventory turns and forecasts future demand - seeking to identify excess inventory and optimal inventory levels for your operation. After our review, we will develop a short list of achievable objectives, some technology strategies and, of course, an increased profit estimate through inventory optimization. Let us help you find ways to maximize both your profit and your business potential.

As part of this analysis, you get a free Inventory Investment Analysis. Most businesses see an average potential inventory value reduction of 20% - all of which falls to your bottom line.


1st Step - Analyze the structure of inventories – AS-IS situation
ABC analysis of inventory
Not all products are equally important. You certainly have enough work to do and therefore you can not spend the same amount of time with products that can hardly be sold as with the best-sellers.
The ABC analysis is supposed to enable you to focus on the essential processes in the supply chain. Its goal is to separate the essential from the nonessential. The focus of this activity is to be directed to the most profitable area (A parts), while the costs in the other areas are to be reduced by the simplification of processes (for example, by implementing a usage control). The ABC analysis is a primary analysis. It can be used as a basis for follow-up or secondary analyses such as the segmentation or the XYZ analysis.

XYZ analysis
Surely you agree that for some items are easier to forecast demand than for some others. This analysis helps you to find items easier to forecast so you can automate their ordering and spend more time to forecast demand for those (items) which are more difficult to predict.
The XYZ analysis enables you to perform the next step of the inventory analysis and tells us about the fluctuation of demand for some products The following typical classification has been generally established:
X materials - characterized by a constant, non-changing usage over time. The requirements fluctuate only slightly around a constant level so that the future demand can basically be forecast quite well. Unfortunately, experience has shown that even the forecast for X products can be poor.
Y materials - The usage of these materials is neither constant nor sporadic. With Y materials, you can often observe trends, for example, that the usage increases or decreases for awhile, or that it is characterized by seasonal fluctuations. For these materials, it’s harder to obtain an accurate forecast.
Z materials - These materials are not used regularly. The usage can strongly fluctuate or occur sporadically. In these cases, you can often observe periods with no consumption at all. The creation of a forecast is extremely demanding and very difficult. It is useful to further subdivide the Z materials into Z1 and Z2 materials, the latter being used even less regularly than the Z1 materials. This enables you to trigger detailed counteractive measures for particularly critical materials.

2nd Step - Turning Dead Inventory into Cash
How to detect "dead" stock at an early stage when we stil sell them - but slower, so that later they do not become pure cost. Analysis of the Inventory turnover allows us to detect "dead" stock on time in order to proactively reduce the costs of their care in the future.

3rd Step – Determination of Inventory Policies
Safety Stock - Cost of Inventory can be a substantial amount of money. But it is possible to define a safety stock for each item based on desired availability in accordance to importance and fluctuation of items. So this cost could be lower if you use calculation of Safety stock with Seven Steps Inventory Optimizer .
Cycle Stock is portion of stock available or planned to be available in a given period for normal demand, excluding excess stock and safety stock. This functionality helps procurement professionals in determining the ordering quantities

4th Step - Analyze the reasons (root causes) of excess inventory
Very important part of LOGIKO methodology for inventory optimization, is finding and eliminating cases that have brought us tu inventory problems. A system and method is developed for root cause analysis and early warning system in order to detect inventory problems in early stage.

5th Step - Clearly define the responsibility for inventory
Like quality, customer service, and plant safety, inventory must be promoted throughout the organization as everyone's responsibility. Surely you'll need someone to be in charge but the question is would it be procurement manager (he is responsible for reducing the costs), or is it better to do it sales manager (he knows what clients want). Whoever would it be you must be carefull not to implement conflict goals into responsibilities of those people.

6th Step - Identify and monitor inventory key performance indicators (KPI)
When we reach this step is not yet finished. in fact almost never. It is necessary to constantly monitor and control inventory and compare them with the set policy reserves. However, the KPIs used to achieve better results, it is challenging task.