7 Reasons Your Inventory Optimization Software Is Not Working
Predicting the Unpredictable: Inventory Optimization Software
Inventory Optimization contains nine syllables, two words, and one concept. It means having what you need when you need it. Too much inventory can cut your profit margin; too little can prevent you from meeting demand and tip your customers toward the competition. It sounds simple, but the inventory optimization math any supply chain process will use is as important as the metal alloy used to forge a chain of metal links. You can find cheap plastic and expensive chains formed from solid metal alloys with irresistible names and features.
How Strong is the Inventory Optimization in your Supply Chain?
The question is: How do you calculate your optimal inventory level? It’s like trying to predict the weather – no matter how many variables you take into consideration, you inevitably fail to account for something – Offshoring, transportation costs, commodity trends, globalization, new product introductions, extended supply chains – all these factors and an infinity of others make optimizing inventory levels a daunting task. Frankly, it is too much for the human brain to handle.
Inventory Optimization using Advanced Software
But that is why we invented computers. New IO (Inventory Optimization) software is helping businesses predict the unpredictable. You can estimate your inventory levels with the proper tools to maximize profit and minimize waste. Further, Modern software can account for many variables and potential outcomes and summarize the choices into simple graphs and charts, allowing the user to pick the best model for their business for each product group.
Single and Multi-Echelon Inventory Optimization
On the whole, IO technology can be divided into two broad categories: single-echelon software and multi-echelon software. These categories are surprisingly self-explanatory. Single-echelon software can handle inventory estimates for stand-alone operations – a single distributing plant, for instance. On the other hand, multi-echelon software is ideal for predicting inventory needs for multi-tiered operations – say, the aforementioned distributing plant comprises a single hub in a company composed of a network of specialized hubs, each with its optimal inventory levels. Put another way: Single-echelon software can regulate traffic on Interstate 40, whereas multi-echelon software can regulate traffic on the country’s entire Interstate system.
Read this Top Inventory Optimization Download
The most Ignored (and profitable) factors of Inventory Optimization are demand forecast accuracy, supplier constraints, and warehouse (or store) capacity. We explore these critical (why) and often overlooked components to Inventory Optimization. The 3 Most Ignored (and Profitable) Factors in Inventory Optimization
Top Down or Bottom-Up Inventory Management Delivers Different IO Results
However, the most advanced tools are only helpful if used properly. The first step in successfully applying IO technology is identifying the software that best suits your business’s needs. In an online article in Supply Chain, Marisa Brown insisted that your IO technology should focus on reducing inventory investment and improving customer service. Once you have determined which technology will help you achieve those two goals, you can apply IO technology and software accordingly.
As Brown said, “The process – not the technology – is the key….”
Inventory Optimization consists of nine syllables, two words, and one concept. Having the appropriate inventory at the crucial moment can be the difference between being in the black – or the red. IO technology helps you to stay a step ahead of the competition in an increasingly complex global market.
Inventory Optimization Software Has 7 Questions You Need to Ask
Modern Inventory Optimization software will meet significantly higher expectations than legacy software. While legacy software will try to give the appearance of being effective, easy-to-use inventory optimization, the key detail to review is the data your legacy software requires to run.
What data fields does your inventory optimization software need to calculate the most profitable amount of inventory to carry? Answers to these questions will highlight your opportunities or where your current inventory optimization software and processes lack benefits.
- How does your inventory optimization software group the optimization – by supplier and product group or just a group?
- Does your current inventory optimization software provide purchase order line and header costs and acquisition and carry costs?
- Does your system account for your supplier’s minimum shipping requirements (quantity and dollar requirements to ship) when calculating the optimized amount of inventory to carry?
- How does your Inventory Optimization software plan for service goals and account for gross margin and lost sales?
- Does your inventory optimization list options and costs if you cannot meet the most profitable choice?
- Can you set up alerts that tell you when the optimization math has changed?
- Finally, are the results shown as a data grid and graph with choices displayed on one page for end-to-end visibility, or are you forced to page through a collection of pages?
Finding the Right Inventory Optimization Questions
Many people review software but fail to ask the right questions. When you need help reviewing your inventory optimization software and the options that exist, Contact Us. Find the key questions you need answered when reviewing inventory optimization software. It’s it time for you to ‘Tighten the Links In Your Chain’™.
Copyright © Data Profits, Inc. 2014 All Rights Reserved.
Stuart graduated from Auburn University, with bachelor of science in business administration.
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