SDE Analysis in Inventory Management

Starting with the basics, what does SDE stand for? It represents three levels of classification: Scarce, difficult and easy. The SDE analysis looks at what inventory is available and classifies it according to the scarcity of supply. With this analysis, scarce products are usually imported, take longer to arrive, and the supply is harder to come by. An example of a scarce product is one that might have to go through government agencies. This slows down the process, whether it be in customs or through regulatory bodies. Either way, these channels can make a product scarce. Next is the difficult classification. This refers to items that could be available domestically, but are still harder to get hold of in the market. The lead time to acquire these goods might be two weeks, but it is generally less than six months. Lastly, easily identifies inventory that is readily available and easy to access. These items are available locally and can be procured quickly.

Why should you use SDE analysis?

If you use the SDE classification, it can help you counteract any difficulties faced in the procurement process. By classifying items as scarce, difficult or easy, it can help you clearly plan your year with the procurement team. You can see which items you need to get in advance and which products can be sourced with ease.

Benefits of SDE analysis

One of the main benefits of conducting an SDE analysis is future planning. Since it highlights which products might be trickier to acquire than others, it can kick-start your procurement process. This allows a business owner to prepare the warehouse and organise plans with other suppliers when they can get this process underway. It is a simple system that can provide guidelines and a quick snapshot of what’s going on and what needs to be ordered.

Disadvantages of SDE analysis

Although using this type of analysis can help make a foggy inventory picture clearer, it isn’t always very accurate. It can help loosely with planning, but one difficult product might vary drastically from another difficult product. For instance, one could be acquired in three weeks, while another one could take four months to procure. However, they are both marked D for difficult. It can provide some overarching guidance, but this classification shouldn’t be used to plan exact dates in the calendar. Consulting with individual suppliers is necessary, and each product needs to be managed on an individual basis.

This analysis classifies inventory on three different levels, based on the availability of items. 

• S – Scarce, refers to generally imported items that require longer lead times and often are in short supply. For example, imports of goods are subject to the government's stringent regulations and ultimately slow down the procurement process. 
• D – Difficult, refers to items that are often available domestically but are difficult to procure. For example, items that generally come from far cities or where reliable suppliers are difficult to find. The general rule of thumb for this classification is that if the inventory stock requires more than a fortnight to be available, but less than six months lead time, it should be classed as difficult. 
• E – Easy, refers to items which are freely available, that are often procured quickly and locally, relatively hassle-free.

SDE Analysis Example Table: Recommended Inventory Control Policies

This table shows how inventory items are categorised under the SDE framework. Each category reflects the availability and purchase of complex products and their application to the right policy, ensuring better resource allocation. 

By aligning inventory control policies with SDE categorisation, businesses can improve procurement planning and reduce stockouts. This approach ensures that resources are allocated where they’re needed most – helping you to adapt in a dynamic supply chain environment. 

Implementing SDE analysis effectively requires a structured approach. Below is a practical guide to help businesses classify inventory and optimise procurement strategies using this method:

Step 1: Gather Inventory and Procurement Data

Start by compiling a complete list of inventory items along with key procurement details:

• Lead Times: How long does it take to receive each item?
• Supplier Reliability: Are suppliers consistent in meeting delivery schedules?
• Availability: Is the item imported, domestically sourced, or locally available?

Inventory management systems like Unleashed Software or Cin7 can automate this data collection and provide real-time visibility.

Step 2: Classify Items into S, D, and E Categories

Category each item into the SDE categories, using the following criteria, and document in a spreadsheet or inventory management system.

• Scarce (S): Items in short supply, imported items or with a long lead time. 
• Difficult (D): Domestic items with moderate challenges (lead times between 2 weeks and 6 months).
• Easy (E): Freely available, locally sourced items with short lead times.

Step 3: Apply Inventory Control Policies

Once classified, implement tailored strategies based on the SDE classification. 

• Scarce: Maintain high safety stock, plan procurement well in advance, and establish long-term contacts with domestic and international suppliers. 
• Difficult: Moderate safety stock, negotiate flexible contracts, and forecast demand accurately.
• Easy: Minimal safety stock, leverage just-in-time procurement, and optimise reorder points.

Automation tools in inventory management software can set dynamic reorder points and trigger alerts based on category-specific rules.

Step 4: Optimise Using Forecasting and Analytics

Use demand forecasting to anticipate future needs and adjust stock levels accordingly. Advanced inventory software integrates forecasting models to reduce overstocking and stockouts.

Step 5: Review and Update Regularly

Market conditions, supplier performance, and demand patterns change over time. Schedule periodic reviews (quarterly or biannually) to update classifications and policies.

The SDE analysis is commonly used to allow for better planning when procuring inventory stock. By classifying items into these categories it enables your business to easily take into account more problematic lead times, focusing your attention and resources there so you can prepare in advance. Also, when using the SDE analysis, it can be used to inform your purchasing strategies for the better.

Although this analysis can certainly help get a clearer snapshot of inventory, it does not provide in-depth insight. It can help guide planning at a surface level, but products in the same category may have inherently different procurement characteristics. For example, items A and B are both classified under D for difficult; however, item A can be acquired in 4 weeks, whereas item B takes 4 months.

Therefore, this analysis shouldn’t really be used by itself to plan procurement down to a tee. There is still a need for communicating with each supplier so items can be individually managed accurately; however, best practices involve sophisticated inventory management systems and smarter processes to overcome this drawback.

Inventory management software includes real-time stock visibility, demand forecasting and automation tools to reduce manual errors, make data-backed decisions and streamline your operations. 

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