Inventory frictions plague the modern goods space, creating frustrated customers, abandoned shopping carts, and billions of dollars in damages. But for 3PLs and distributors, inventory frictions aren’t just minor headaches; they’re torrential storms that minimize profits, destroy relationships, and degrade business growth. To be clear, inventory control is the heart of your entire operation. Over 40 percent of merchants turn to 3PLs to alleviate their inventory woes. The unfortunate irony is, many 3PLs also struggle with inventory — especially given the scale and complexity of their inventory requirements.
To compensate, distributors and 3PLs are quickly turning to technology and agile-fueled practices to minimize inventory disruptions. In retail alone, inventory overstocks and stock-outs eat $1.1 trillion worth of profits. The cost of that off-the-shelf ERP system pales in comparison. Yet, many 3PLs find their off-the-shelf solution lacking in the inventory control department — forcing them to perform a never-ending tango with the mountain of new product lines and SKUs slowly draining productivity and profits out of their business.
So what do you do when your ERP investment fails to solve your inventory woes? And how can you build a robust and resilient inventory ecosystem that creates opportunity, profits, and value — not overstocks, deadstock, and headaches?
It’s difficult to overstate the sheer cost associated with inventory mismanagement. From carrying costs of excess inventory (e.g., labor, rent, utilities, taxes, insurance, etc.) to dead inventory, expired products, and vendor agreement degradation due to out-of-stock SKUs, small inventory missteps lead to massive financial, regulatory, and relationship consequences. To minimize these direct threats, 3LPs and distributors regularly turn towards analytics-driven platforms like ERP and WMS solutions.
But there’s a problem. ERPs aren’t built for your business. They’re built for everyone. Microsoft has hundreds of thousands of customers. So, when Microsoft builds out a solution like Dynamics 365, its goal is to touch as many bases as possible. Similar to the old adage, many ERPs are “jacks of many trades” and “masters of none.” Unfortunately, ERPs aren’t masters of inventory control. You need pitch-perfect forecasting to optimize stocking policies. You can’t afford little mistakes.
Remember, inventory management is a massive balancing act. Too much inventory forces you to waste revenue (and possibly accrue debt) to maintain. Stock too little inventory, and your vendors and customers get angry. And holding on to inventory for too long creates deadstock and expired products. There’s little room for error, and your entire balance sheet hangs above the valley of forecasting. Built-for-all ERPs can’t always accurately predict your stocking requirements — and this often leads to serious financial frictions.
We built StockIQ to solve this issue. Our solution is purpose-built for 3PLs and distributors — which often have incredibly complex inventory requirements, multiple ongoing vendor promos, and plenty of supplier minimums. Today, let’s look at how StockIQ accurately calculates inventory requirements in complex inventory ecosystems, and why this matters for businesses looking to control costs and maximize inventory accuracy.
StockIQ provides value across multiple inventory verticals. In fact, our solution is considered “Supply Chain Planning” software — not just a forecasting solution. In general, we provide access to features like:
In other words, StockIQ goes far beyond inventory accuracy. We enable 3LPs and distributors with industry-leading inventory and supply chain management capabilities. So, it’s important to remember that all of these capabilities intersect and converge to create high inventory accuracy. For the purposes of this post, we’re focusing on forecasting, but forecasting alone won’t solve inventory woes — especially given the delicate nature of handling multiple suppliers, vendors, and clients.
Our platform leverages machine learning and amazing algorithms to generate forecasts. But there are three incredibly important variables that are important to inventory control:
We all know that safety stock is a critical part of running an inventory-based business. Your business will inevitably face promos, demand surges, and supply drains, so keeping buffer stock on hand in the case of an emergency is just good business. Let’s be clear: most companies fail at safety stock. In fact, it’s a $1.1 trillion issue. Customers will buy something from another store if their merchant is out-of-stock. It’s that simple. And it’s always been that way. Back in 2004, Harvard Business Review surveys suggested that almost half of shoppers visited another store when an item was out of stock. So, despite the massive availability in the digital age, customers have always demanded on-hand stock. The necessity of safety stock has accelerated, but it certainly hasn’t appeared out of thin air.
So, why are so many businesses struggling with safety stock? Because they don’t understand their full position. Your safety stock position is a measure of how much stock you have on-hand, back-ordered, and incoming. In other words, your safety stock position measures your entire inventory pipeline — not just your current on-hand inventory.
StockIQ uses your safety stock position (along with supplier minimum data, order frequency data, and complex smoothing algorithms for promos) to help determine how much stock you need in your pipeline at all times.
Your target stock level is a measure of your on-hand inventory and your safety stock position. It’s easiest to think of your target stock level as a measure of your overall stock needs, not just your buffer. Your target stock level is variable. Your location and service level impact your target stock level. In fact, safety stock requirements are measured by calculating target stock goals, understanding pipeline orders, and combining it all with smoothing algorithms and promos.
Contrary to popular belief, minimum stock levels aren’t all-too-important. They’re mostly defined by service levels. If you understand your target stock and safety position, you should never be in a position where the minimum is crucial to your accuracy or profitability. Instead, maximum stock is the primary measure of inventory health. This level establishes how much maximum stock should be in your warehouse at any given time. You set this to prevent risk. Let’s say a promo is running that impacts a specific SKU. You want to meet demand and prevent stock-outs, but this particular promo is absolutely amazing, resulting in a quick drain on your supplies. Without a maximum stock level, you may be persuaded to quickly order a large amount of inventory to keep up with demand. This puts you in a risky position. The last thing you want is for supplier frictions to prevent your order from arriving during the promo period, or promo demand to shrink mid-promo. Suddenly, you have a large amount of dead stock on your hands. Max stock eliminates this threat.
StockIQ takes target stock goals (which are based on historical and future demand), combines them with your safety stock position (which is based on order frequency data and smoothing algorithms for promos), and leverages max stock (which is based primarily on risk algorithms) to determine how much inventory you need. Here’s the great thing. We do that for every location, across every SKU, and every supplier, every day. In other words, StockIQ combines intelligent algorithms and machine learning with a fundamental understanding of 3PL and distributor inventory needs. And we use a hyper-intelligent platform to generate inventory demands every day of the week in a matter of seconds.
Is your amazing ERP failing to accurately detect inventory needs? Are you ready to embrace a holistic and demand-driven inventory ecosystem? We can help. At StockIQ, we put inventory accuracy at the forefront of your business. Contact us to learn more.