Inventory Management with Optimization Technology

Why is optimization needed for inventory management?

Inventory carrying costs often comprise a substantial part of the total cost of production, and they drive significant decisions regarding production and distribution. Inventory service levels also affect customers’ satisfaction. Inventory optimization helps you determine the correct inventory target levels to keep at all locations and for all products throughout your supply chain, and helps you manage the trade-off between inventory and distribution costs and customer service levels.

What types of inventory management problems can be addressed with optimization based technologies?

• How much inventory to hold and where to locate it
• How much and when to purchase raw materials
• Understand the tradeoffs between “make vs. buy” decisions
• How much and when to make to order or make to stock
• Make trade-offs between inventory costs and service levels
• Where and how many spare parts to hold
• Balance shipping and warehousing costs

Benefits of successful inventory management

• Improved customer service levels
• Higher inventory turns
• Reduced working capital invested in inventory
• Reduced expediting costs

Best Business Practices to enable successful inventory management

• Companies who position inventory management as a core business process, not just a side affect of other planning processes, have been most successful
• Implement a standardized inventory and safety stock target setting process
• Automated “right-sizing” of target levels while users review exceptions only
• Understanding the characteristics of each individual product including demand variability, supplier performance
• Inventory planners who continually challenge the status quo and try to understand the drivers of inventory and improve those which have the most affect (e.g. lead time, production frequency, target service levels)

Capabilities that optimization solutions need to deliver to enable successful inventory management

• Ability to perform multi-echelon inventory analysis from finished goods all the way through semi-finished goods and raw materials
• Identify key inventory drivers within your supply chain for each SKU
• Understand the components of inventory levels including cycle stock, safety stock, pipeline and pre-build inventory
• Easily integrate with ERP and planning systems so that input and output data can be automatically transferred back and forth if required
• Structured Framework that allows automated operational target setting and “what-if scenario” analysis to co-exist together while leveraging the same input data
• Workflows that enable “management by exception” allowing users to focus on value-added activities
• Perform Service Level Optimization under certain constraints including max working capital

Featured products

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  ILOG Inventory and Product Flow Analyst

  Enterprise inventory and product flow optimization