In a time of extreme unpredictability, companies need to centralize inventory control. It’s imperative to drive agile decision-making by consolidating data across the network, employing advanced analytics, and enabling real-time visibility. The result is improved service levels, lower costs and the ability to transform inventory into a profit center.

Proper inventory management requires optimization of stock, both at rest and in motion. Excess inventory drains working capital, while stockouts negatively impact service levels. In the consumer packaged goods sector, inventory optimization ensures that companies have enough raw and semi-finished material for manufacturing, can balance goods at distribution centers, and are able to place the right SKUs on retailer shelves.

Until 2019, large enterprises were confident in their inventory management strategies, relying on “just-in-time” deliveries of pars and products. The COVID-19 pandemic disrupted this equilibrium. The industry’s initial “just-in-case” response resulted in $740 billion in excess retail inventory in the U.S. retail, a 12% increase over the prior year. Ongoing global volatility ended up challenging every approach to inventory management.

A report by the Council of Supply Chain Management Professionals highlights the issue: In 2022, U.S. business logistics costs surged by nearly 20%, with inventory carrying costs a significant factor.

Companies need to acquire comprehensive visibility in order to build the agility needed for effective inventory management. This involves digitizing data across the network, from vendor service-level agreements and order forms to radio frequency identification and point-of-sale data. Analytics and process automation complement this visibility shift, enabling teams to respond quickly and accurately while automating execution.

Centralized inventory control towers (ICTs) are emerging as the next generation of inventory-management tools. They offer a triad of visibility, analytics and automation. One convenience retailer improved product availability and realized over $100 million in incremental sales by establishing an inventory health “cockpit.”

A strong data foundation is crucial for end-to-end visibility and advanced analytics. For large companies, inventory data often resides in disparate sources, such as spreadsheets, enterprise resource planning systems, partner data and unstructured sources like media coverage. An ICT must accommodate this diversity to provide usable insights.

The first step is to ensure flexible data pipelines that can ingest varied data while maintaining governance and security norms. This data must be cleaned, integrated into a single hub and customized according to business rules. It can then drive real-time dashboards and advanced tasks such as predictive modeling and prescriptive analytics.

Modern enterprises require centralized ICTs to harness descriptive, diagnostic, predictive and prescriptive analytics for optimization:

• Descriptive analytics tracks the status and location of inventory.
• Diagnostic capabilities such as Pareto analyses help teams understand underlying issues.
• Prescriptive analytics, such as dynamic inventory rebalancing, advises planners on how to redistribute excess inventory to meet demand at other locations. Simulation techniques estimate the impact of unforeseen events, allowing for rapid response.
• Predictive capabilities, such as supply risk linked to inventory capability, forecast delays and stockout risks. Machine learning enhances forecast accuracy and optimizes SKU inventory dynamically.

Advanced analytics must be paired with accessible and comprehensive visibility. Teams need analytics-driven insights, inventory snapshots for various timelines and policy suggestions. Mature companies ensure that their ICTs provide real-time knowledge across the inventory landscape.

The tool includes dashboards that cover overall inventory health and on-shelf availability. Senior managers require longer-term views, such as historical trends and key performance indicator updates, to continually review and formulate strategy.

Centralized ICTs offer the agility needed for streamlined inventory management in unpredictable environments. Yet successful integration requires addressing several factors.

Change-management workshops and training sessions help teams transition from traditional workflows to the new system. The capabilities must be flexible and customizable, allowing teams to easily embed new business rules or test predictive techniques. This ensures continued engagement and growing adoption.

Large companies with multiple internal business groups need a scalable ICT that replicates success across multiple settings. These criteria ensure that existing investments in forecasting or inventory management systems do not preclude the benefits of centralized ICT implementation. By embracing a centralized ICT, companies can navigate the complexities of modern supply chain management, driving efficiency and profitability even in the face of global volatility.

Sagar Guntupally and Hemanth Holla are directors, supply chain, with Tredence Inc.