• Look for a solution that can solve your problem. Specifically you want a solution that can not only accurately forecast intermittent demand but also tell you how much inventory and safety stock you need to cover demand over replenishment lead times. While most ERP systems, even those specializing in service operations, claim they can do the job, most cannot.
• How do you know? Make every vendor prove that they can solve your specific problem. For example, Metro North Railroad (MNR) recently purchased a solution after exhaustively evaluating a number of vendors, and asked finalists to forecast MNR’s service/spare parts consumption, using actual MNR data. The best solution’s forecast accuracy outperformed its nearest competitor by 50 percnet. That kind of performance can be worth millions of dollars - not only in inventory cost savings, but also in increased ROI and reduced payback time.
• Normally, your IT department will become involved in the selection process. Most of the time, their inclination will be to use a solution that’s easiest for them or that they already know. Remember, the needs of the IT department and your department – even the organization as a whole – may differ. However, the less disruptive the solution you choose to existing systems, the less resistance you’ll get from others in your organization.
• Look at the total cost-of-ownership (TCO) of any solution you’re considering - initial purchase cost, ongoing maintenance costs, installation and training costs, time-to-results, projected payback and ROI. Having this kind of information can be very useful when trying to justify a purchase.
It’s not unusual for the right intermittent demand planning tools to achieve a 20 percent reduction or more in inventory levels, while maintaining or improving fill rates and service levels. If we take another look at that $650 million dollars worth of parts we referred to above, there’s probably at least $130 million of savings that can be found there and put to more productive uses.
You’re in business to service the public. If given a choice of saving millions by reducing customer service or by fixing an out-of-balance inventory situation, which would you choose? Maybe it’s time to take a look at your parts inventories, and find out what savings you’ve got hidden.
Charles N. Smart is president and CEO of Smart Software Inc., Belmont , Mass. , provider of the SmartForecasts demand forecasting, planning and inventory optimization system for transit agencies and other organizations in the transportation industry. He can be reached at firstname.lastname@example.org or 1-800-762-7899.