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Perfect inventory management balance

Good inventory management starts with the definition of meaningful goals. Only then we can analyse where is potential for optimisation, because: “If you don’t know what you are looking for, you will never find it”. The analysis therefore points out the conspicuous features.

At the same time, however, one should also search for the cause of these “conspicuousness”; because surprisingly high or surprisingly low stocks can certainly be the result of a sensible stock strategy. Once the root of the problem has ultimately been identified, measures are determined and implemented.

The needle in the haystack ...

Depending on which goals have been defined, the question arises as to what needs to be controlled. If, for example, the aim is to reduce tied-up capital, it is necessary to find out where the capital guzzlers are, e.g. in the raw materials, in the finished goods, in the purchased parts.

If the cause lies in the raw materials, it is necessary to determine what the main sources are and why they are being hoarded. Is it based on the wrong procurement strategy? Is the forecast too inaccurate or the materials manager too cautious? Well-set parameters and sets of rules can help uncover this; simulation programmes can help in the planning of measures.

Such simulation programmes compare the updated status with the status resulting from the newly set parameters while retaining the set parameters. Simulation programmes are important above all because changed parameters in inventory management only show their effect with a time delay.

On the one hand, this means that success can take some time, but on the other, it also means that incorrectly set parameters can lead to a situation that cannot be corrected ad hoc.

Key functions in detail

Screenshot: Dashboard the combined display of value and behaviour of individual materials or material groups

ABC XYZ analysis the heart of inventory management

A combined display of value and behaviour of individual materials or material groups shows at first glance where to look more closely.

In the dashboard, the view can be switched between value and piece at the touch of a button; this is helpful in finding potential.

Key figures at a glance

Logistical key figures are ten a penny. The trick is to filter out the relevant ones, track them and, if necessary, derive measures.

The central key figures in supply chain management include the reorder level, the warehouse stock and the safety stock. This is where there is great potential for savings in particular if the replenishment times are not right or the warehouse and safety stocks are too high.

Figure: Icons replenishment lead time, warehouse stock, safety stock

Unnecessarily high stock and safety stocks tie up too much capital and increase the risk of slow movers and dead stock because, for example, a material has been replaced by a modern, climate-friendly one or the demand for a product has ebbed away. By way of the right analysis, e.g. in ifm’s controlling solution, you can track down the dead stock and eliminate it.

Of course, it is even better to prevent dead stock from arising in the first place! Intelligent software systems can also provide support here, for example by setting up a reliable forecast, by incorporating information about the product life cycle into procurement and by determining safety stocks not according to gut feeling but according to incorruptible algorithms.

Reorder level
When the reorder level for a material is reached, the material must be reordered.

The reorder level is calculated as follows:
(daily consumption x delivery time in days) + safety stock = reorder level.


Stock level
The level of the desired stock level depends on the assessment of the procurement and sales market. It is, therefore, a strategic consideration. However, the higher the inventory level, the more capital is tied up. The lower the “stock turnover time”, the more economically the company operates.

The stock level is calculated as follows:
Ø stock level = 360 days *
Ø stock on hand/annual consumption.


Safety stock
To compensate for unexpected fluctuations in demand and, therefore, avoid delivery failures and loss of customers, companies usually calculate a minimum or safety stock. Although this “iron reserve” ensures the smooth running of the supply chain, it also ties up capital. The safety stock is added to the basic stock.

The corresponding formula is:
1/3 * consumption in the replenishment period = safety stock

Do without experience and expertise?

An error-free, automatically controlled, order process that manages the companys supply chain processes with maximum efficiency? In an ideal and completely plannable world, this could work. But our world does not always act logically and continuously.

Figure: Icons weather conditions, sporting events, political changes.

There are, for example, unexpected events such as weather phenomena, sporadic events such as sporting events, political changes and interdependencies between individual events that cannot be predicted by evaluations and algorithms.

All these events can have an impact on the supply chain. Therefore, the basic rule in forecasting, procurement and inventory management is that everything that can be planned and complies with rules is automatically forecasted and planned, but that the know-how of experienced experts is necessary with regard to the effects and interactions of many unplannable events. Clever software systems, such as those from ifm, combine both.

SAP consulting from ifm

Process consulting for your supply chain

We will accompany you on your way. In accordance with your requirements, our team of experts for SAP and supply chain will support you from the very beginning from process mapping to the implementation of the perfect solution.

The range of coverage matrix

In addition to the ABC/XYZ analysis, there is another central matrix in the inventory management software. The coverage matrix shows exactly the corridor in which your stock levels should be. Red indicates shortage, yellow means overstocks. Both are not desirable states, because they have a negative impact on liquidity, costs and customer relations and, in the worst case, bring production to a standstill.

Screenshot: Coverage matrix

The better the parameters are set, the more sustainable savings can be made in inventory management while at the same time safeguarding the supply situation.

Countering chaos in the supply chain

Recent years have shown how intricate the supply chain network is. Serious problems have often developed overnight and must be recognised and solved at short notice.

Screenshot: The coverage matrix works with planned values that are stored in the master data

However, the range of coverage matrix works with planned values that are stored in the master data. What is currently required is a speedboat that can immediately take up a new course and accelerate. One such tool is the replenishment lead time monitor. By way of this solution, delivery horizons can be tracked on a daily basis.

Replenishment lead time monitor

In the replenishment lead time monitor, current replenishment lead times, which result from the key date data of order and delivery, are compared with planned replenishment lead times. Variations are systematically identified and automatically highlighted in colour: Yellow for early delivery and red for delay. The person responsible can, therefore, see at first glance the material that requires urgent action.

Screenshot: Replenishment time monitor

With a single click, the materials manager jumps to master data maintenance and adjusts his replenishment lead time. Company-specific sets of rules ensurethat the safety stocks and reorder points are also automatically adjusted as a result.

Master data: The foundation of your system

No one likes to take care of it, yet everyone is aware of its relevance. All statements, analyses, sets of rules, key figures and proposals are based on master data. If these are insufficiently maintained, there is no reliable control of the supply chain, in particular inventory management.

To quickly and easily bring quality to a top level, and to keep it there, ifm’s controlling solution includes mass master data maintenance and many other facilitations:

Display of consumption development at single material level over time to detect changes in the behaviour of the material.

Simple jump to the corresponding MRP parameters to make the necessary changes there.


Automatic calculation of default values for degree of service level and safety stocks.

The target/actual comparison is based on different MRP parameters.

One click on the quotation and the parameters are optimised.


Simulation: Graphical comparison of stock development based on different MRP parameters.

More transparency by way of graphic visualisation

The faster the current status is recognised and the need for action is seen, the better and more stress-free the processes run. An essential part of ifm’s inventory management solution is therefore the graphic presentation of the facts: See at a glance where the shoe pinches or not.

A reliable alert system and the allocation of roles do the rest, because no to-do is overlooked and useless information waste does not prevent the view of the essentials. No getting bogged down, no wrong decisions; this is how even unplannable materials can be brought under control!

Author Image

The ifm solutions have brought decisive transparency, in particular in the past three years of permanent crisis. We have seen much, much more than in the SAP standard.

Mehmet Kozan Manager Supply Chain Management, Baier & Schneider GmbH & Co KG

We have thought ahead to your questions

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By using ifm’s controlling and operations solution, we were able to speed up our materials planning processes by more than 67%. We have been able to reduce our scrapping by 73%, whereby the interaction with the forecast module has played a significant role here and, last but not least, we have been able to increase our delivery readiness by 3%.

Mehmet Kozan Manager Supply Chain Management, Baier & Schneider GmbH & Co KG

First steps on using ifm’s inventory management solution

Curious and want to learn more about the controlling solution? If so, we invite you to a 20-minute webcast for newcomers with our colleague Sven Daniel Heck, Senior Consultant Inventory Management and Procurement.

Author Image

Inventory management gives you transparency in your stocks and increases the master data quality by way of targeted maintenance of your MRP parameters. This also has a positive effect on your stocks.

Sven Daniel Heck Senior Consultant Inventory Management and Procurement, GIB S&D GmbH

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