Four Things You Probably Didn’t Know About Inventory Planning and Sustainability
You can’t scan the headlines without coming across an article or advertisement about sustainability, but there is precious little information about how supply chain planning software supports green initiatives. I think it’s time we started spreading the good news: when you harness demand and inventory planning to slash unnecessary expenses and improve service to customers, you also reduce waste and support sustainability.
Here are four ways smart supply chain planning directly impacts sustainability initiatives.
1. Having the right inventory in the right location brings a variety of waste-reduction benefits
The place to start for a more efficient inventory stocking strategy is better understanding your demand so you can precisely predict how much goods you need, where and when. When you reduce uncertainty in your forecast, you can minimize inventory while guaranteeing service levels. Here are just a few of the sustainability benefits.
Slash wasteful expediting costs and miles: When you better anticipate customer demand, you reduce the need to expedite with LTL and air freight, along with costly in-network transfers from warehouse to warehouse.
Reduce carbon emissions: Eliminating wasteful expediting and warehouse transfers means fewer carbon emissions from inefficient and unnecessary truck and rail transport.
Minimize inventory space: It’s estimated that up to 22% of inventory is unnecessary. When you remove it with a smarter stock mix, you minimize the amount of space required for inventory and reduce overhead costs such as power, heat and real estate–and still meet or exceed service commitments.
2. Reduce Wasted Fuel and Unused Transportation Capacity
You may not realize how much transportation efficiency can improve as a result of better inventory optimization. A vehicle or container running empty or partially full is wasting space and fuel and generating excess carbon emissions. Instead of returning empty after drop-offs, your planning solution can help you group vendors for return pick-ups to make the most of available freight capacity, improve efficiency and balance inventories. Planning technology can also help you take better advantage of economies of scale with international shipments.
Your inventory planning software can also help you make smarter, CO2-saving transfer decisions. When you need to move inventory from one location to another, you’re often faced with two options: do you place another order and risk an overstock, along with the extra cost of running a truck? Or would it be better to balance the inventory via a transfer among a group of associated warehouses? Your planning system can help you identify which transfer option will save the most money and miles and ensure sustained service.
3. Smart inventory planning cranks up manufacturing efficiency
Your planning system must help you manage both constrained and excess capacity, effectively balancing the competing objectives of customer service and manufacturing. It works this way: when you consider the probabilities associated with demand, there is less of a “cost” to rescheduling some planned orders than others. When you have excess capacity, your planning system must pull forward the planned orders that can best contribute to service performance. When you have capacity constraints, you must manage the trade-offs across items to reduce the overall risk of a stockout or a shorted customer order. By managing over a longer horizon, you can better leverage available capacity to reduce the possibility of future shortfalls. This helps reduce the need for additional shifts or overtime.
You can also use planning to reduce product transitions. Safety stock levels can be optimized to provide a better buffer against demand variability. This increases schedule adherence and reduces the need to run small batches to fill orders for out-of-stock items; small batches generate higher emissions per unit of output. And by evaluating production requirements over a longer horizon, you can better plan campaigns to minimize the start-up / shut-down of equipment required for changeovers, which conserves energy and reduces emissions.
4. Better understanding inventory reduces waste due to excess and expiring lots
It’s estimated that the U.S. alone spends $218 billion to grow, process, transport and dispose of food that is never eaten. Retailers account for about 8 million tons of waste in the U.S.1 You can finally get ahead of lots that are at risk and avoiding overplanning stock by understanding the inventory you have and when it will expire. A more accurate forecast results in producing the right amount of goods to avoid sell-off. Next-gen inventory optimization defines an inventory mix that takes into account shelf life to maximize freshness and minimize risk of obsolescence. It does this by generating a stock to service curve that helps you understand how best to achieve service levels without risking obsolescence.
We invite you to look at supply chain planning technology through a new lens: All of these environment-loving tactics also have the happy effect of contributing to the bottom line and helping you squeeze extra productivity out of your supply chain.