ABCs of Inventory Planning Jeffrey Porter Chief Marketing Officer

Agenda Inventory planning introduction Approved stock list Demand and forecast management Safety stock | Inventory policy | service level Stock replenishment Inventory process Measure inventory performance

Jeffrey Porter -- CMO 25 + years of hands-on experience developing solutions and processes for inventory planning and management within the distribution and manufacturing industries. Systems consultant at Andersen Consulting until the early ’90s. Manufacturing development Engineer at Hewlett- Packard Founding staff member of RockySoft 16 years at the company. Business Development, Sales, Service, CEO Colorado State University BS Engineering MBA CPM 6+ year member of Vistage, an executive coaching organization StockIQ / Intelligent Supply Chain Planning / www.stockiqtech.com

Company Highlights Supply Chain Planning software with consulting and implementation services Targeted to mid-market distributors, manufacturers, and 3PLs Headquarters: Broomfield, Colorado Privately held StockIQ / Intelligent Supply Chain Planning / www.stockiqtech.com

What We Do Software tailored to the distribution, manufacturing, and 3PL industries Integrated tools for operations planning, transforming the planning process into a powerful engine for maximizing revenue and service level Inventory reporting solution to accelerate the Sales & Operations Planning processes (“S&OP”) and ensure timely collaboration among sales, marketing, supply chain, finance and partners StockIQ / Intelligent Supply Chain Planning / www.stockiqtech.com

Industries We Serve Wholesale Distribution Manufacturing eCommerce Food & Beverage Multi location Transfers BOMs Dependent demand Integrate eCommerce platforms Channel analysis Expiring Inventory Alerts Promotion Planning 3PL Consumer Packaged Goods Industrial Supply Third Party Logistics Retail Customer Analysis Drop Ship PO’s Vendor tracking Shipper/Client Logins Warehouse Inventory Analysis SKU categorization Promo Planning StockIQ / Intelligent Supply Chain Planning / www.stockiqtech.com

Inventory Planning Defined Inventory planning involves determining when to order products and in what quantity. It includes all the activities of demand and replenishment planning. What will my customers order? When should a replenishment order be placed? How much should be ordered?

Inventory planning goals Maximize Customer Service Minimize Investment And Costs

Does Inventory Guaranty Service? “Based on discussions with companies found in Gartner's annual Supply Chain Top 25 rankings, we find that companies with the lowest inventories tend to also have the highest fulfillment rates. More inventory does not guarantee service and less inventory does not necessarily lead to service challenges. Survey results suggest that, if inventory has little correlation to service, other enablers, in addition to a good forecast, are required to manage both inventory and service.” Demand Forecasting Leads the List of Challenges Impacting Customer Service Across Industries, Gartner, July 2016

Inventory Planning Benefits

Inventory planning challenges Determining how much stock should be maintained on each product (possibly at different locations) to meet your customers expectations. Understanding/anticipating your customers expectations of product availability.

1) - Approved Stock List Separate stock from the stuff. Develop a rigorous item approval process.

Approved Stock List

2) Demand Planning Demand Planning Objective: Produce a forecast of demand which reflects reality. “Effective demand management plays a vital role in enabling supply chain to deliver high service at appropriate inventory levels and cost in an environment of extreme demand volatility.” Take Seven Actions to Improve Demand Management Capability in Consumer Products, Gartner, November 2015

Sales History & Statistical Forecast

Keys to Effective Forecasting Separate items with sporadic usage from those with recurring usage. Correct for any unusual usage. Inject marketing insight. Measure forecast accuracy.

Separate Items with Recurring Usage

Inject Marketing & Sales Insight

Forecast Accuracy ”Forecast accuracy impacts important service metrics. Forecast accuracy along with order management capability are important enablers in developing end-to-end processes to improve customer fulfillment.” Demand Forecasting Leads the List of Challenges Impacting Customer Service Across Industries, Gartner July 16 Reduce the risk of stock outs (customer disappointments) and excess inventory Lower Forecast Error Reduce the inventory investment in required safety stock Productivity

Ask Customers or Sales to Forecast? “The mistake organizations can make is that they ask sales for forecast input on everything they sell or don't ask them for a unit-level forecast at all. Neither is correct, and the answer lies somewhere in between. Simply rolling up inputs from the sales organization, for example, is not a demand plan, but a sales forecast.” Take Seven Actions to Improve Demand Management Capability in Consumer Products, Gartner, November 2015

Ideal Forecast Approach “Balance statistical modeling, ‘Statistical Forecasting’, techniques and collaborative inputs as part of the consensus demand, ‘Customer Centric’, plan to produce the best estimate of demand.”

3) Safety Stock Insurance against unusually high customer demand/forecast error and supplier shipment delays. Is a buffer of inventory used to prevent stock outs. Safety Stock is a business policy decision.

Service Level

4) Replenish Stock Reorder Point = (Anticipated Demand/Day * Projected Lead Time) + Safety Stock

5) Inventory Process - Manage by Exception

6) Measure Inventory Performance

Measure Inventory Performance

Service Level

Inventory Turns

Summary Reduced Inventory Increased Perfect Order Performance Shorter Cycle Time Improved Fill Rate Improved ON-Time Increased Perfect Order Performance Less Expedites Efficient Production Scheduling Reduce the risk of stock outs (customer disappointments) and excess inventory Lower Forecast Error Reduce the inventory investment in required safety stock Productivity

Thank You for attending! Jeffrey Porter 720-420-7939 or 970-481-0040 jporter@stockIQtech.com www.stockiqtech.com Intelligent Supply Chain Planning