Executive Briefings

The ABCs of Inventory Optimization

Inventory optimization might seem like an old concept, but many companies fail to apply it properly, especially in the area of multi-echelon inventory management. Karin Bursa, vice president of marketing with Logility, details IO's key benefits and challenges.

Bursa defines inventory optimization as the ability to evaluate a company's need for inventory across its global network. "Most businesses are limited to looking at inventory at a single location," she says. Optimization involves examining every site, then figuring in the company's unique needs, such as investment, service, time to market and time to replenish. Raw materials and work in progress can also be factored into the mix.

The hot topic today is multi-echelon inventory optimization, says Bursa. The concept allows managers to view their entire universe of inventory, then deploy it according to the needs of the moment. For example, holding inventory in a flexible state as long as possible can lower both cost and risk. Many companies are exploring this notion of manufacturing postponement as a means of better serving local markets according to their specific needs.

The bottom-line benefits, says Bursa, are "tangible - even for companies that consider themselves best in class." A comprehensive view can lead to a dramatic reduction in total inventory-carrying costs, often in the neighborhood of 10 to 30 percent.

Several obstacles stand in the way of true inventory optimization. The biggest one, according to Bursa, is the inability of today's enterprise resource planning systems to support the kind of deep analysis that is required. Companies must be able to model multiple scenarios and goals. "You need to tap a best-in-breed solution, take that model and [make it] an ongoing part of your sales and operations planning process," she says. As a result, companies gain the ability to respond to changing market conditions.

Bursa believes companies need to do more to reach the goal of true inventory optimization. Many continue to use standard rules of thumb for making stocking determinations. "I think there's still a lot of opportunity in the marketplace," she says.

To view video in its entirety, click here


Keywords: supply chain, supply chain management, inventory management, inventory optimization, inventory control, global logistics, warehouse management, logistics management, supply chain planning, supply chain systems

Bursa defines inventory optimization as the ability to evaluate a company's need for inventory across its global network. "Most businesses are limited to looking at inventory at a single location," she says. Optimization involves examining every site, then figuring in the company's unique needs, such as investment, service, time to market and time to replenish. Raw materials and work in progress can also be factored into the mix.

The hot topic today is multi-echelon inventory optimization, says Bursa. The concept allows managers to view their entire universe of inventory, then deploy it according to the needs of the moment. For example, holding inventory in a flexible state as long as possible can lower both cost and risk. Many companies are exploring this notion of manufacturing postponement as a means of better serving local markets according to their specific needs.

The bottom-line benefits, says Bursa, are "tangible - even for companies that consider themselves best in class." A comprehensive view can lead to a dramatic reduction in total inventory-carrying costs, often in the neighborhood of 10 to 30 percent.

Several obstacles stand in the way of true inventory optimization. The biggest one, according to Bursa, is the inability of today's enterprise resource planning systems to support the kind of deep analysis that is required. Companies must be able to model multiple scenarios and goals. "You need to tap a best-in-breed solution, take that model and [make it] an ongoing part of your sales and operations planning process," she says. As a result, companies gain the ability to respond to changing market conditions.

Bursa believes companies need to do more to reach the goal of true inventory optimization. Many continue to use standard rules of thumb for making stocking determinations. "I think there's still a lot of opportunity in the marketplace," she says.

To view video in its entirety, click here


Keywords: supply chain, supply chain management, inventory management, inventory optimization, inventory control, global logistics, warehouse management, logistics management, supply chain planning, supply chain systems