How Distributors Can Maintain the Right Inventory Levels in an Uncertain World

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Determining optimal inventory levels has been a longstanding challenge for distributors, but today’s volatile supply chain — with shortages, stockouts, and delays — has only made this feat more difficult. To maintain warehouse efficiency, keep customers satisfied, and master inventory management, distributors will need to look to the right technology solutions.

Challenges of Inventory Management in a Post-Pandemic World

The global supply chain has been, at best, unpredictable since 2020, and many companies are struggling to keep up with customer needs.

Compounding this unpredictability is a lack of visibility into the supply chain, which often leads to distributors either under- or overstocking inventory. Understocking results in unhappy customers who cannot get the products they need, while overstocking creates pressure on warehouses and logistics.

The supply chain is not likely to get back to “normal” anytime soon.

To ensure they have the right inventory levels for their customers’ needs, distributors will need the assistance of the right technology. One effective solution is Master Planning in Microsoft Dynamics 365.

What Is Master Planning?

Microsoft Dynamics 365 Finance and Supply Chain Management’s Master Planning functionality allows companies to determine and balance the future need for inventory to meet company goals.

Companies use a variety of metrics to determine the minimum inventory levels required to meet current and future demand. Ultimately, distributors must calculate net requirements to ensure they have enough inventory on-hand to meet customer demands without accumulating excess.

To determine net requirements, distributors subtract scheduled receipts and stock already on-hand from an item’s gross requirements, which includes buyers’ orders, forecasts and upper-level demand.

This formula may seem simple, but calculating the right level of net requirements across an organizations and in real time can be tricky, especially in the current climate. That is why businesses that take advantage of Microsoft D365 Master Planning, have an advantage.

How Does Master Planning Improve Inventory Management?

To reiterate, Master Planning uses a variety of metrics to determine optimal net inventory requirements. Companies can choose between two plans, static and dynamic, or use both in conjunction.

With the static plan, a net requirement plan is created using existing data by means of the Master Planning functionality. The plan remains the same unless it’s changed manually or the Master Planning calculation is run again. The static plan is favored by purchasers and production planners to make decisions and carry out their day-to-day duties.

The dynamic plan, on the other hand, allows you to update the initial net requirements plan whenever the master data changes, without changing the static plan. This mean that those using the static plan can continue their daily activities undisturbed while you’re able to monitor changes in orders and item availability.

In addition to these plans, there are three main planning processes companies can utilize:

  • Master Planning: Calculates net requirements based on current orders for short-term inventory management
  • Forecast Planning: Calculates gross requirements based on forecasts for long-term inventory planning
  • Intercompany Master Planning: Calculates net requirements across legal entities for both short- and long-term demand and supply

By using all three of these planning processes, businesses will not only have the ability to set unique net requirements, but they can also utilize robust data histories and machine learning algorithms to accurately forecast future demand and prepare for fluctuations in advance.

Although some Master Planning features are better suited for manufacturers, distributors garner benefits from the functionality because it allows them to plan in real time with improved demand forecasting, reduced stockouts, and optimized visibility into what their customers need.

The Value of Planning

A buzzword of sorts in the distribution space is “supply chain visibility.” Sufficient visibility ensures everyone from manufacturers to distributors to end-users have the knowledge they need about stock levels of raw materials and finished goods.

The importance of supply chain visibility cannot be argued, but today’s unstable climate makes it a challenge without the intervention of a smart technology solution. With Microsoft Dynamics 365 Finance and Supply Chain Management, you can improve demand planning and gain greater inventory control.

Leveraging these solutions will help ensure you have enough inventory to meet demand or, alternately, avoid having too much inventory to handle. A certified Microsoft partner like Sikich can help you implement this feature and customize it so that it works for your organization.

Reach inventory management mastery — contact Sikich today to get started.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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