Why Inventory Optimization

Different players – different targets. For a profitable supply chain, effective inventory management is a key factor often challenged by conflicting requirements of the different players involved in the business planning process (Sales & Operations Planning).

The Sales department requires a high level of finished goods inventory in order to provide good customer service and satisfaction. Supply Chain Operations are interested in having high levels of raw material inventory allowing them to better react to uncertainties in supply. However, increased finished goods and raw material inventories will lead to higher inventory carrying costs, which will have a negative impact on financial performance.

In contrast to the sales and operations functions, the finance department will demand lower inventories to reduce the company’s capital investment and improve cash flow.

If the competing objectives of high service level and low inventory are not properly balanced, this will have a negative effect on customer service and financial performance with a corresponding loss of sales, reduced business confidence and profit.

BUSINESS IMPROVEMENT THROUGH INVENTORY OPTIMIZATION

 

“Balance is everything”. Inventory Optimization (IO) is the systematic approach of achieving the balance between service level goals and cost.

Nowadays there is no need to blindly increase levels of stock in order to achieve better service. Advanced inventory optimization tools take into account demand and supply uncertainties and enable companies to achieve better fi ll rates with lower inventories:

The basic drivers of inventory, such as forecast error or lead time variability are common to most supply chains, making inventory optimization relevant for every industry.

There is a wide range of inventory management software available which make use of sophisticated optimization algorithms to help achieve your inventory reduction targets without impacting – rather improving! – your service level.

Organizations that have implemented similar inventory optimization systems have reduced inventory levels by up to 25 percent within one year.

Organizations that have implemented similar inventory optimization systems have reduced inventory levels by up to 25 percent within one year.

THE KEY BENEFITS OF THIS TYPE OF INVENTORY MANAGEMENT SOFTWARE

  • INVENTORY REDUCTION

Inventory reduction while achieving target customer service levels leading to reduced operational cost and enhanced profitability

  • VISIBILITY & TRANSPARENCY

Improved visibility of inventory deployment with exception management

  • WHAT-IF ANALYSIS

Various “What-If” scenarios can easily be performed

  • BEST PRACTICE PROCESS

A best-practice process for the management of inventory can be established

  • COMPETITIVE ADVANTAGE

Increased competitive advantage

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