Ebb and Flow for Inventory Part 1: Best Practices for Front Loading Inventory for Peak Periods
The enterprise knows they’re coming: seasonal and promotion-driven periods of peak demand. In preparation for peaks, it’s common for warehouses to receive the bulk of inbound shipments all at once or in a short period of time. There’s a good reason for this. Businesses need the extra inventory to have enough supply in stores and in distribution centers to meet demand. Conversely, they don’t want to receive inventory too early because having too much too soon can drive up carrying costs.
But handling the rapid onslaught of inbound shipments comes at an operational price: higher costs for resources such as labor, equipment and storage space. Since the enterprise has advance notice of peak periods, it has an opportunity to do a better job of balancing the needs of the enterprise with available resources.
The answer lies in timing and planning. More specifically, when and how businesses should receive inventory.
Front Loading Inventory
A company can maximize the efficiency of its distribution operations by bringing in seasonal or promotional products in stages. This approach is called “front-loading” inventory. It serves to avoid the just-in-time receipt of large shipments.
There are clear benefits to a front-loading inventory approach. These benefits translate into cost savings on labor, warehousing and transportation:
- Trailers don’t sit idle in the yard while waiting for available labor to unload them.
- The business avoids demurrage charges from the trucking company.
- Distribution has less of a need to acquire more storage, labor or materials handling equipment just to handle peak volumes.
Here’s the Question
How can one determine if a front-loading strategy is the right course of action?
In order to analyze the effects of inventory front loading, the following sets of data points are essential:
- Forecast of sales over peak periods that factor into consideration the anticipated lift in demand over the same period historically
- An inventory plan that reacts appropriately to expected peak demand, balancing customer service goals, in-store availability objectives and costs
- Projection of the impact on warehouse resources or other parts of the supply chain. The projection should anticipate what would happen to actual, on-hand quantities and the effect on receipts in the warehouse.
Why Not Use a Spreadsheet?
A spreadsheet-based planning process falls short for the amount of data analysis required. There are simply too many variables—such as overlapping promotions, historical performance and demand forecasts—to consider. To do the level of planning required for a solid analysis, planners need to be able to answer the question, “what if?” when a variable is adjusted, and see how other parts of the plan are affected.
With the ability to model variable changes, planners can assess whether it makes financial sense to bring the inbound shipments of seasonal or promoted product in stages. And, if so, calculate the number of stages and in what amounts.
Don't Forget Collaboration
There’s another factor for front-loading inventory success, collaboration. Through cooperation with forecasters, planners and buyers, DC managers can schedule staff for trailer unloading and product putaway without incurring unnecessary overtime charges or hiring temporary help.
Striking a Balance
Balancing front loading of inventory with available resources can help blunt some of the labor and storage tolls that periods of peak demand place on the business. Making the decision to front load or take inventory just-in-time starts with forecasting the effects on resources. Looking at multiple scenarios can help with building confidence that the next decision about inventory is the ideal one.
In part 2, we look at an organizational practice that can be adapted to make front-loading and other inventory strategies more successful.