When small and mid-market distribution companies start considering that it might be time to evaluate and replace their existing wholesale distribution software systems, they’ll typically calculate a potential return on investment they strive to achieve. From my experience, the one area of tangible benefits that will dwarf all others comes from an overall reduction in inventory investment and associated carrying costs. Generally distributors can pay for the entire new distribution software system and associated ERP implementation costs based solely on the reduction in inventory. Strong ERP systems like TGI’s Enterprise 21 provide the information and processes to enable wholesale distributors to improve overall inventory management.
There are numerous information requirements when it comes to performing time-phased inventory requirements planning (distribution requirements planning, or DRP), including customer demand, inventory statuses, inventory management business rules, and procurement and supply chain management business rules (and production-related data and business rules for manufacturers). The area of focus for this article is on forecasting – specification of one’s best volume estimates as to the total requirements for finished goods to satisfy customer demand.
Within Enterprise 21, forecasts can be created externally and then imported into the system or can be generated within the system based on historical sales data. A forecast can be defined as granularly as for a specific product, customer, servicing facility (i.e., warehouse or cost center), ship-to geography, and sales person; or it can be at some higher level of aggregation (i.e., all customers receiving a given product from a specified facility, etc.).
When using the system to generate a forecast, one can specify the number of periods to forecast, whether or not to apply seasonality to the forecast, one or more facilities, products, vendors, and buyers, and a range of dates to use for historical sales demand purposes. When the forecast generation process is run, Enterprise 21 analyzes the historical sales demand data and a series of algorithms to determine the best fit formula on a product-by-product basis. Forecast generation can be done separately for subsets of the product mix and then an overall forecast can be created by overlaying these separate sub-forecasts.
Once the system completes the forecast generation process, one can view a graph of historical and forecasted data and the associated best-fit algorithm (i.e., line, curve). Also, the forecast can be reviewed and adjusted manually as desired.
It is common for distributors to work with a series of forecasts such as ones that depict worst-case, best-case, and most likely-case scenarios respectively. A forecast can be used as one of the key inputs to a time-phased inventory requirements planning process for the generation of a series of purchase requisitions for the procurement of finished goods in the case of wholesale distributors (and components and/or ingredients to support production plus a tentative production schedule which ultimately becomes the master production schedule for manufacturers).
By using Enterprise 21’s fully-integrated planning process, wholesale distributors can generate forecasts which are an essential input to the time-phased planning process which becomes a key enabler to reducing and optimizing the distributor’s overall inventory position. Please click here to see a high-level overview demo of Enterprise 21’s forecasting and planning processes from within TGI’s Resources Library.