Taking an enterprise-wide approach can turn inventory optimization into a key asset and a competitive advantage
 
Inventory optimization is one of the hottest topics in supply chain circles today — and rightfully so. As a growing number of organizations have proved, astute planning and management can wring 20-30 percent out of current inventories, saving "multiple millions" in direct costs and achieving huge gains in operational performance, all while maintaining — or even improving — product availability and customer service.

The Case for "Multi-stage" Inventory Optimization

This heightened interest in optimizing every step in the supply chain is a function of the increasing size and scope of today's networks. As supply chains grow, often stretching across the globe, so does the complexity of homing in on appropriate, time-varying inventory targets at each point along the way. In fact, because the steps are interdependent, the complexity multiplies. At the same time, the inherent risks and uncertainties at each point virtually ensure that more problems will occur and that when they do, they will send shockwaves up and down the supply chain.

The challenges of managing every type of inventory that an organization maintains — safety, cycle, pre-build, pipeline and merchandising stock — at multiple locations and/or stages in its supply chain are indeed formidable. The complexity of the task has clearly outgrown many of the planning processes and tools that organizations have adopted even in just the past few years.

Multi-stage or "multi-echelon" solutions provide powerful capabilities for modeling the most complex supply chains and analyzing a staggering number of variables, constraints and "what-ifs." Sophisticated algorithms, combined with a stochastic (probabilistic) approach, enable multi-stage inventory solutions to assess vast amounts of historic and real-time information, considering multiple variabilities and interdependencies.

Moving on: Enterprise Inventory Optimization

As more companies implement multi-stage inventory optimization solutions, they'll have their own impressive results to report. They'll also have the opportunity to drive further development and fuller deployment within their organizations, ensuring that the technology yields an even greater return on investment. However, the greatest opportunity — and the greatest reward — lies in taking multi-stage inventory optimization to the next level: the enterprise level.

"Enterprise inventory optimization" (EIO) is a term that encompasses a more comprehensive view of inventory planning and optimization than is commonly held today. It's more than having multi-stage technology in place; it's using inventory optimization as an enterprise asset and shaping it into a core competency that the organization can call upon as it grows, innovates and affirms its leadership in its industry.

Moving inventory optimization to the enterprise level is likely to entail integrating it into other enterprise planning and management systems, including sales and operations planning and systems that support the so-called "demand-driven supply network". The goal is to create a dynamic, ongoing planning capability that enables the organization to position resources where and when they are most needed and will turn the best profit.

When an organization aligns inventory planning and management with enterprise-wide goals and strategies, it can take advantage of new opportunities, such as winning additional market share in carefully targeted locations or channels, based on greater product availability and enhanced customer service. In this way, the organization can attain top-line revenue increases, despite flat markets and entrenched competitors.