Sales pipeline analysis for inventory

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what is the perfect inventory level for your company I got this question so many times in my life and in this video I'm going to teach you how do I work how do I forecast the short term the midterm and the long term using real examples from real companies and also give you the directions to improve your inventory your service and the profit of your company [Music] alright so I'm going to be completely honest with you I've been working in supply chain and operations for the last 15 years in multiple countries from Wales worker to demand planning snlp suppression director and consultant I really did my best but I never reached this perfect level never why because it's never enough and I was classified the top performers in my companies I've been optimizing the inventory by hundreds millions of USD and Euros but when I was doing a great year I had to do better the year after and I was pushing and pushing every day like Dwayne Johnson not in the same way because I don't have the same body but I was eating a lot of croissant very late at night at the office and at the end mathematically the perfect level of inventories zero with infinite sales and volumes like for example if you have it's like having a Marketplace of infinite products and with infinite sales and you don't own the products like Amazon Marketplace or Alibaba and if you go even deeper will be perfect to have minus infinite of inventory with infinity infinite dollars of sales and volumes if we go back to the cash to cash cycle the customers will pay you first and then you're gonna pay your suppliers within an infinite time okay so I recommend you to watch this video about the cash crash cycle inventory cost but at the end just accept the idea that it's impossible to be perfect we have to detach from Perfection and because I was too attached from my optimization at one point I burned out because it was just impossible to reach at this level for my mind and for my body as well so the most important is the direction okay you don't reach Perfection but the direction is really important and I like this example from Elon Musk let's go to Mouse and maybe they will never go to mass but at the end they have a clear vision and they will push them to the right direction with the right tools and products that they're developing right now so before going to Mars you have four steps to Define your inventory Target that's what we're going to talk about the first one is you cannot improve what you cannot measure and in supply chain you have three PL is not only insipulation but for your company you have the service and the revenue you have the inventory and the cash that you want to minimize and you have also the costs we're going to focus more on the inventory but not in value why because for example if your sales are growing by 1000 percent it makes sense to have more inventory and you cannot really compare two companies or two parameters just talking about the value you need to know how efficient was or is the inventory then we call that the Stockton or the inventory return so you can watch my video about inventory turnover ratio but the formula is basically average inventory value divided by sales on consumptions with the same valuation we call it cogs multiplied by the period and for this specific example we're going to focus on the 52 weeks targets okay so now how to define the future inventory Target you have multiple levels you have the location level from world to one specific person you have the product level from all your products to one specific item and you have the time levels from the year to the quarter to like maybe every day or every week you have on one side is very strategic on the undersides very like operational or fighting and the idea of today's read to focus first on the top top down forecast on macro to micro I do feel it's much easier to forecast macro instead of summing multiple Focus from one item or one specific group of products it's much easier let me know in the comments if you have more questions regarding top down forecasts and button-up forecasts as well so now the first step is you need to know your historical performances and I'm gonna get one example from one company I was working this is like a fashion company they have a lot of problem with inventory and this is the performance over the last five years you can see the sales and the inventory we use the same valuation for the for these two to calculate the inventory turnover it's not great to be honest for this industry you have the availability and you have also I like to have the availability of the products and because only the top sellers because I feel this is more important you can check my other videos if you want to know more about this kpi so at the end you have the current year you have 240 days of inventory which is a lot on the availability is not great but in this industry it's not very important what is more important is to secure the top sellers okay so now you have different Horizons of targets and we're going to talk about it right now so you have the two-day Horizon you have the performance of today then you have the one year then you have the three years and then you have the five years how to define these multiple targets we also have the target per month and per weeks we're gonna keep it simple and I like to start always with what is my vision what is my direction and my direction how do we Define the long-term Target that is Step number two the step number two I like to focus from five to ten years I like five years because it's not too far but it's long far enough and if I go back to that you have multiples where I'm gonna give you just an overview of course I will spend more time if it was my own company but in 15 minutes we can have some insights the first thing I'm going to check my performance like historical performance to see what what the best results the last five six seven eight years and you can see that in this specific example the performers were not great the best year was 183 days with this availability which is normal because this company doesn't have a strong maturity level of the circulation but it's good to know what was the best before then you can also check with your commercial Department marketing and finance okay what is the prediction for the next five years do you pray to grow super fast or not because the more you will have volume the easier it will be to improve your your inventory level on the other side if you plan to open many new locations like stores Warehouse factories or if you plan to have much more products in your catalog it will be much more difficult to optimize your inventory so be careful with that then what is your supply chain maturity level prediction do you plan to improve the level of expertise of your team by training by recruiting most talented people and also maybe to transform the level of your technology and Erp if you plan this it will be much easier to improve your performance that if you should keep firefighting every day for the next five years another example I like to see what are the top performers industry results in terms of inventory turnover for example in this industry fashion industry we do have Zara with around 80 Days of inventory turnover and ham with 132 days they are quite different why because the production cycle of zero is much shorter made in Europe and in North Africa while hm is producing massively in Asia and China so I recommend you to watch my video about Safety stock to see really the impact of lead time in your inventory levels but it's always good to know what is the performance of the the best players in your industry to have a direction once again you can share for example for restaurants and you have McDonald's way lower than the fashion industry with only two days of inventory level domino pizza or the um group it's always good to know and for the automotive industry we can see Toyota around 49 and Tesla and Volkswagen around 70 80 Days of inventory by knowing that it would be great to know okay this is my direction today are 240 days the dream will be to be around 100 days of inventory for this specific industry and that's it we have our Direction This is not perfect but this is where we want to go we want to go to mass and the dream will be 1200 days within the next five years then we have to define the midterm Target the three years Target and you see it's much easier when you already have okay the two days performance and the five years you need to find a range between these two values and to be honest it's much easier to improve your inventory and service at the beginning that when you're going close to your target like five years Target so like from my point of view I always say okay we'll have to reduced by 30 in two years from three to five years and I like to have run numbers I will take 140 days and the more you will have experience the more it would be easier for you to Define this target then okay what is my short-term Target one year and for this one I will get back to my best historical performances and I can see that okay my best years I was doing 180 200. so at the end I will say you know what we did 240 let's go to 200 and I like to keep it simple we're going to reduce our inventory by minus 17 that will be a great start to go to the right direction to reach one day hundred days of inventory turnover so you see I keep it simple what also recommend is to divide your targets into three levels I call it the GBA The Good the better and the amazing the good is basically to pay the bills I like to have like a minimalist Target let's say okay we go to 200 days the better is your more realistic Target we want to do minus 17 and 200 days and the amazing is like wow if you do everything perfectly we're gonna go to 180 days at the end of this year I like to have this relover because you can also like release some pressure and also you can also give more like bonuses and share the success with your team ing to the different levels this is what I'm doing as well with my team today and in the past so at the end you can see we have three levels of Target from 240 to 100 and I like to have the amazing and the good Target to have the range of potential but what is important at the end is to go to the right direction then your financial director say Okay grated while you're going to 200 days but how much do I need to get from my bank and that's why we have to go back and convert into value and we have these new targets and just to show you one example I like to focus one with this kind of situation to improve my availability only on my top seller so you see I'm increasing this one but I'm not improving the global availability Target because I feel this is less important and the focus will be to improve inventory and cash flow but now okay I want to have my value of inventory I already get from my Sales Direct okay this is the target we're gonna do plus 10 next year and then we go back to the formula and we just do like a very simple mathematics switch we have the target 200 days we do have the sales from the sales director we have the periods and at the end what is missing is my average inventory value for that we're going to switch the formula you can pause this video If I'm going too fast and at the end the total result will be 18 millions of dollars that's my Targets in a value so my financial director is happy I'm happy as well because I know I have to go to 200 days and of course you will have to readjust this target if your sales are not going to 33 Millions you will have to change ingly all right so now we have this year Target what about the monthly and weekly targeted one and that's a very good question once you have all these targets you can then duplicate maybe to provide this forecast to your Warehouse to your factory to recruit people to invest and for that you need a monthly or weekly Target so to Define your monthly and weekly Target you will have to use the seasonality for your inventory and your sales and always also give you the stock turn or inventory return Target I'm not going to talk about seasonality in this video because it's already a long video if you want to know more about seasonality leave me a comment and if I have more than 10 comments I will share with your tutorial how to create your own seasonality to focus better your volumes your Productions your sales or your inventory and finally once you have all these targets per week and per month you can start sharing them by using for example Excel this is one of the templates I'm sharing with my abc expression members the Sales Inventory production which can be very useful to identify any red flag or action to improve your performance at the end the more you will analyze the more you will fill it and now with only 20 or 30 minutes if I have the right data I can give a clear direction to the company I'm working with so now the next question how can I reach my ambitious Target that's great to know where you go but how do you do it and for that you will have to move from macro to micro top to done step by step you'll have to be very careful not to have the same inventory turnover Target per group of products it will really depend on the strategy and the business model you have and my last advice is don't wait for the new Erp version of your company if you want to improve your performance it's completely possible to reduce by 10 to 50 percent your annual level and also improve your service I'm using a lot of excel templates as a consultant as a teacher to go to the right direction to implement immediately tools that can really sustain my performance and then when we have time and when we have the budget we can move to more ambitious and Technical Erp software migration so I hope guys that you enjoyed this video don't forget to subscribe and likes if you want to go further I have multiple tools and Excel that you can play and unlock below this video and if you want to go much deeper I creating new methods and workshop to become an inventory management expert you have a free Workshop below this video and I'm gonna focus on how to reduce and overstocks by sharing the 13 parameters you should absolutely Master thank you for watching and see you soon [Music] foreign