Supply Chain Planning Benefit Calculator

How much could your business benefit from service-driven supply chain planning that increases service levels while reducing inventory?

In 5 easy steps, this calculator will give you an idea of how much Service-Driven Supply Chain Planning can improve your revenue, working capital and bottom line.

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First, what is your industry?

Wholesale/Distribution

Retail

Manufacturing

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What can service-driven supply chain planning add to your bottom-line?

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Adjust slider to customize for your own company

Industry Average

Adjust slider to customize for your own company

Industry Average

Lost Sales Ratio is that portion of sales that are lost when the product is out of stock and not available. Typically, branded products have a 40% lost sales ratio, meaning that 40% of the time that the company is out of stock, customers will choose a product from another company, rather than wait or buy a different product that you offer. Procter and Gamble says that among consumer products companies, a lost sales ratio of 28% is considered close to best in class. Commodity products usually have much higher lost sales ratios.

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Service Level is the expected probability of not hitting a stock-out or not losing a sale. You can also think of Service Level as the probability of being able to service the customers’ demand without backorders or lost sales. While a 100% service level might - i.e. service all customers all the time - appear desirable, it is usually not a feasible option.

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Target Service Level is the service level you are seeking to achieve. It can be higher or lower than your current service level, but in most cases businesses are seeking to improve their service. Typically service level improvement ranges from 1-5pp, but can be higher if the company currently is achieving less than a 90% service level. One gross rule of thumb is that you should be able to reduce stockouts by half and still achieve some inventory reduction. To break this down, a company that is achieving a 90% fill rate should be able to improve to 95%, a 5pp improvement. A company that is achieving a 96% fill rate, should be able to improve to 98%, a 2pp improvement.

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How do you currently manage your inventory?

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Potential revenue impact

Here is an estimate of the potential impact that service-driven supply chain planning can have on your bottom line:

Impact on Revenue

Current Revenue
$1,000,000
Potential Revenue
$1,100,000

Potential Impact on Net Profit %

54%

Potential Impact on Net Profit $

$100,000

The Impact on Net Profit is directly on Net Profit, not only Gross Profit. This is because the additional Revenue carries only direct costs, hence entire gross margin is added to the bottom line.

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What can service-driven supply chain planning do for your working capital?

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Adjust slider to customize for your own company

Adjust slider to customize for your own company

Industry Average

Adjust slider to customize for your own company

Industry Average

Inventory Turn shows how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover to calculate the days it takes to sell the inventory on hand. A low turnover implies weak sales and possibly excess inventory, while a high ratio implies either strong sales or insufficient inventory.

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Inventory Holding Cost % should be the sum of both cost of capital and the operational costs associated with carrying the inventory.

  • In a low inflation environment, a typical cost of capital is 8-10%.

  • Operational costs vary greatly depending on the product. Products with high obsolescence (e.g., fresh food, electronics) should have high inventory carrying costs. Products which require expensive warehousing (refrigerated foods, dangerous goods) will also. A low operational cost may be 5% but can be much higher.

  • Total inventory carrying cost % (cost of capital + operational costs) is rarely below 15% and can be much higher.

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Potential inventory impact

Here is an estimate of the potential impact service-driven supply chain planning can have on your working capital.

Impact on Inventory

Current
$1,100,000
Potential

$1,000,000

PotentiaL Inventory Reduction

$100,000

Impact on Inventory Holding Costs

Current
$1,100,000
Potential
$1,000,000

Potential Inventory holding cost reduction

$100,000

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Potential inventory impact

Tangible benefits such as profit margin, lost sales and inventory are just some of the benefits of supply chain planning investments.

There are additional benefits that impact the bottom line, that are a bit harder to quantify. While they may vary across supply chains, they can be significant none the less. As you build a business case for investing in supply chain planning technology, don’t overlook these additional measurable benefits.

Reduced premium freight costs from expediting fewer shipments
Transfer cost reduction
Less overtime
Planner productivity increase and less time spent firefighting
Reduced IT infrastructure cost

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That’s just the start...

Download our brief on How to Calculate Inventory and Service Level Improvements from Supply Chain Planning Software for an opportunity to chat with one of our supply chain experts to learn more about the potential benefits service-driven planning can have on your business.

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Thank you for completing your benefit analysis!

Please check your email for the How to Calculate Inventory and Service Level Improvements from Supply Chain Planning Software brief.

Have questions about estimates and don’t want to wait? Contact us to get started saving today. Call 781-534-5505 or email info@toolsgroup.com.

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These results are based on historical data and are not intended to be a quote, guarantee or proposal. Please contact a ToolsGroup specialist to discuss your business and what results you can expect.


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