May 1, 2015
Over the last dozen years, the bottom-line benefits of Inventory Optimization have proven to rival established activities such as network design, transportation optimization, advanced planning and scheduling, and sales and operations planning.
As their IO efforts and understanding become progressively more mature, companies traverse a common sequence of stages.
An organization must first understand where it sits on the IO maturity curve in order to pursue a journey toward superior competitiveness and outstanding profitability:
- Optimizing a single item/location either through spreadsheets or using the simple safety stock modeling capabilities of the ERP system
- Single site optimization, in which statistical safety stock are scientifically set a for all item locations as part of a tactical planning process.
- Multi-echelon inventory optimization models the supply chain from raw materials through work in process and distribution channels to the customer. Optimization is applied across tiers, taking into account demand uncertainty, supply uncertainty, and constraints.
- Understanding the causes of inventory and exploring alternative inventory strategies across the network to deliver strategic advantage and change the supply chain’s efficient frontier.
This paper provides a quick tour of the steps companies traverse as they progress up the inventory optimization maturity curve to greater inventory savings, working capital availability, and service level excellence.
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