Inventory management software for retailer EVRIKA
CLIENT BUSINESS INFORMATION
Inventory management software for retailer EVRIKA. The network of shops of electronics and household appliances “EVRIKA” has been operating since 2000. Today, the trading network includes a distribution center (DC) and 12 mini, mid and super stores in 7 cities, constantly expanding its geography. In 2005, the corporate sales department was formed, which provides its customers with a full cycle of services: the selection of goods by company specialists, delivery and after-sales service.
The assortment of the network includes more than 15 thousand items from the world famous brands and is divided into 8 major categories.
The company carries out direct deliveries from leading manufacturers of certified electronics and household appliances, keeping pace with innovations in the field of high technologies and constantly adding new products to its range. The assortment portfolio of the company includes more than 15 thousand items of goods with the possibility of making purchases with the help of an online store.
PREREQUISITES OF THE PROJECT STOCK CONTROL SOFTWARE
During the development of the trading network, the company’s management decided to improve the management of inventory and improve the efficiency of its operating activities, and implementation stock control software for retain. At the time of the pre-project survey, the company had a decentralized inventory management system that led to the following problems:
- The orders of the network were formed manually by the managers of the central warehouse in Excel and in the accounting system (1C) by store supervisors. The quality and timeliness of orders depended on the qualifications and workload of managers at the stores;
- The managers did not see the situation of the network’s inventory as a whole. The store that sent the order earlier than other stores got the goods first. For other stores there might simply not be enough goods to order after that. Because of this, managers are often reinsured and ordered much more goods that they really needed. This led to large surplus in some stores and lost sales on others;
- Due to improper distribution of goods from the central warehouse, costs of moving goods between stores arose over the network. The central warehouse shipped the goods according to the orders, without distributing the quantity between the stores properly;
- Management of alternative goods and substitutes was done manually.
It took a lot of manager’s time to perform this task, which might be used to manage the assortment and analytics.
As a consequence, managers who purchased the goods for the central warehouse also could not correctly calculate the level of the inventory that should be supported to provide the network with necessary quantity. Moreover, this industry is characterized by a rapid moral obsolescence of goods, as well as their high cost, so it is critical to control not only the inventory level, but also the assortment, which the managers did not have enough time to deal with.
For the reasons described above, the management of the company began looking for optimization of the inventory management.
REASONS FOR CHOICE OF STOCK SOFTWARE ABM Inventory Management System
After research the market of products for optimization and automation of inventory management, the choice of the company “Evrika” zero in on the cloud solution of ABM Inventory due to the following advantages:
- The logic of the system is built on the basis of the Theory of Constraints, the methodology of which implies the management of the inventory level according to demand, not the forecast. This allows the client to maintain the optimal level of stocks, minimizing, on the one hand, lost sales, and on the other hand, not to overstock;
- The system combines quality and wide functionality at a reasonable cost. Due to the fact that this solution is cloud based, the implementation does not require the purchase of software and additional hardware. The use of the system assumes a monthly payment for the rent of the program;
- Step by step training of the program and constant support on all issues, including after implementation support;
- The reporting system allows you to monitor key performance indicators (KPI) such as turnover, lost sales, surplus, as well as conduct a variety of analytics in terms of product groups and individual items, suppliers, categories and other sections, calculate margin and lost profits, frozen money in illiquid goods.
DESCRIPTION OF THE PROJECT ABM Inventory Management System
Before the launch of the implementation project Inventory management software, the following goals were set:
- Reduction of surplus and lost sales;
- Improved turnover;
- Transition to a centralized inventory management system;
- Orders forming process automation and optimizing the activities of the purchasing department.
The launch of the project involved two stages:
Step 1. Analyzing of the company’s internal business processes to determine the tasks needed for preparing of the implementation of the program. Coordination and implementation of the technical assignment for the organization of data exchange between the company’s accounting system and the ABM Inventory Management system.
Step 2. Connecting stores in the context of product categories to the system. The whole assortment was connected to the auto-order for 4 days. Then the central warehouse was connected to suppliers for 3 days. At the moment, the system manages 28,5 thousand positions of active assortment at all storage locations.
The implementation process at all stages was accompanied by the training of users:
- Training workshop on TOC inventory management methodology.
- Learning to work with the program, its algorithms and customization.
- Training in working with the system’s reporting.
Before the launch of the project, the company’s management appointed central office employees who were in charge of ordering goods from external suppliers at the Central Warehouse, also being responsible for managing store inventories. Schedules of orders and deliveries were created, according to which the system calculates when and to which warehouse and supplier it is necessary to order a particular product. During the project, a minimum order quantity to the supplier and a multiplicity of packaging of the order for the goods of the central warehouse was established and the data was uploaded at the request of the client, since it was decided to conduct the assortment matrix in the ABM Inventory system. Also, the company began to use the product outmovement procedure from the assortment: having installed the product withdrawal sign from the assortment in the product card, the system blocks the order of the goods from the CW to the external supplier, then, when the goods in the central warehouse finished, the system blocks the order from the shops at the CW. After that as the balances at each storage location are zero, the goods are removed from the assortment. This allows saving time and eliminating the human factor when tracking outmoovers from the trading network.
Based on the history loaded in the system for the movement of goods during the initial connection phase, buffers were automatically calculated – target stock levels – for each item at each store. Managers revised the first orders and made changes. In general, after 1-2 replenishment cycles, the system corrected the buffers in accordance with the actual consumption of the goods. Thus, the Dynamic Buffer Management (DBM) algorithm functions (Figure 1).
Also in the system were data on the shelf appearance and the pallet laying of goods (gray area on the chart), which allows the system to maintain the stock needed for sales and for shelves presentation.
In the first week of connecting stores, work was organized with substitute goods, which allowed solving two problems:
- In order of priority, wash out from the network the goods of one alternative family, for replacement of which a new product was introduced;
- Automate the process of forming the goods ordering, organized in an alternative family, taking into account the remnants of the whole family in order to avoid overturning.
The DFO algorithm (demand focused order, Fig. 2), which is based on the needs of all stores, as well as the delivery schedules of stores and the central warehouse, operates to manage the stocks of the central warehouse. The system calculates the quantity for each item to be ordered from the supplier in order to provide the goods to each store until the next batch of goods arrives at the CW, while not creating the surplus, but also not being left without goods. The product schedule, which is managed by the DFO algorithm (Fig. 2), displays daily information about the balances and needs of stores and a central warehouse:
In both algorithms, the use of the period functionality is provided, which allows client to set conditions for automatic change of the stock buffer for a stock or due to seasonal fluctuations. According to the given coefficient, the system itself changes the buffer, and then returns its previous value.
In the course of the project, Evrika opened four more stores. In the future, it is planned to connect one more central warehouse due to the expansion of business.
After connecting the client to the system, the analytic block was configured. Below are the reports that the company uses.
«Order fulfillment accuracy» (Figure 3). The report contains information on the accuracy of the fulfillment of orders by suppliers for the selected period (7, 31, 45 or 60 days). Shows how many products were offered by the system, sent to the supplier, received from the supplier, as well as the difference in quantity, cash (purchase prices), marginal and percentage formats.
“OUT mover” (Figure 4). The report shows, at what stage of withdrawal from the network assortment is the goods and the history of the goods, for which the balances were washed at all storage points.
“Overstocks OUT mover” (Figure 5). The report contains information on surplus stocks for each product withdrawn from the assortment with the dynamics of stocks for the last 6 weeks.
The report “Weekly dynamics of stocks” (Figure 6) makes it possible to track the dynamics of changes in stocks of goods or groups of goods in relation to each other for the company as a whole or using other samples (warehouse, manager, supplier, etc.) in terms of: stocks, sales, average surpluses, lost sales, turnover:
The report “Average surpluses for the last and 4 previous weeks” (Figure 7) displays for each SKU in the context of the selected category (supplier, manager, group, etc.) the dynamics of changes in surplus in purchase prices for the last 5 weeks. For convenience of perception the color scheme is applied: red – growth of surplus, green – decrease, blue – without changes.
A similar report on surplus is also presented for lost sales: “Missed sales for the last and the previous week” (Figure 8)
The report “Current surpluses of goods with lost sales” provides information on goods that are in surplus in some warehouses, while there is a need for them in other warehouses, which allows you to correctly distribute the goods through the network, if for some reason this situation occurred . (Figure 9).
The report “Product turnover (last week)” (Figure 10) gives an opportunity to analyze the company’s assortment in terms of turnover (using filters by supplier / warehouse, etc., as well as in other reports):
The report “Inventories for the last week” (Figures 11a, 11b) allows you to flexibly examine data in the context of one category measurement from the following options:
- Store name
and three measures of the following options:
- Av. holdings
- Av. surpluses
- Lost sales
One of the interesting and useful combinations for analysis is the display of sales and average inventories by commodity groups to identify goods with the worst turnover indicators, which should be paid attention in the first place.
Also in this report we use a diagram in which the data is presented in the context of a certain category and are sorted from the largest values in the upper left corner to the lowest values in the lower right corner that allows you to visually answer the following business questions and focus the limited time of managers on the most priority tasks:
- Which product groups produced the largest / smallest sales volume?
- Which product groups brought the highest / lowest margins?
- Which groups of goods show the largest / smallest volume of lost sales?
- Which product groups have the highest / lowest turnover in days?
- Ratio of average stocks of commodity groups
- Ratio of average surplus of commodity groups
Similar questions in a profile:
The report “Structure of MTS stocks of goods by belonging to the buffer area at the beginning of the week (in purchase prices)” (Figure 12) shows how many active goods in monetary terms are in surplus (blue), in the buffer zone of sales (green) and on the shelf (gray area). One of the advantages of this report is that it allows you to analyze how well the funds are distributed, and whether the level of shelf quantity of goods that should always be maintained for the beauty of the shelf is not inflated, without taking into account the sales buffer.
The report “Inventory of goods OUT” (Figure 13) displays information on goods (in the context of warehouses and other categories), which are marked for withdrawal from the assortment of the network in quantitative and monetary terms, as well as about the status of the goods (is it still ordered at the central warehouse to a shop or the balances on the CW is zero, and the rests of a network are sold).
EFFECTS AND RESULTS STOCK MANAGEMENT SOFTWARE ABM Inventory
- Transition to a centralized inventory management system
- Automation of the process of forming orders, taking into account such moments as seasonal fluctuations, the availability of substitute goods, the balance of the goods on the CW. In this regard, the release of time that managers can use to manage the assortment
- Reducing the number of internal moves between stores caused by improper distribution of balances over the network
- Reduction of surplus by 1.5 times
- Improvement of turnover by 2 times
- Expansion of the network from 8 to 12 stores
- The ability to react quickly to risks and conduct a variety of analytics
We would like to thank the project teams for their professionalism and fruitful work to achieve their goals. Special thanks to the company’s TOP-management for the active position in the implementation issues, as well as for being open to changes and revising the principles of inventory management, making decisions aimed at improving the efficiency of the company.
We wish Evrika to continuously improve performance and realize new opportunities for business development and expansion!
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