Top Techniques for Inventory Optimization

Inventory optimization is a critical function of any supply chain as it ensures that the correct inventory, in appropriate quantities reach the right locations to effectively meet customer demand. A supply chain with little to no focus on inventory optimization will encounter a variety of issues that trickle down from inefficient inventory management. This focus is more critical than ever due to the added network pressures including increased globalization; merger and acquisition changes; increasing virtualization causing inventory visibility issues; multi-channel and omnichannel complexity; and shrinking product lifecycles. Implementing inventory optimization techniques in varying combinations and complexities can help supply chain operators realize significant financial and operational benefits such as reduced on-hand inventory, reduced out-of-stock instances, reduced inventory holding costs and more. Let’s look closer at what inventory optimization techniques have proven to be the most effective. First, identify what inventory drivers affect the supply and demand of your specific inventory category. Drivers can be a variety of factors such as inventory seasonality or raw material constraints if you are a manufacturer or supply a manufacturer. Constantly evaluating inventory drivers will help your team to better understand how your operation is changing and evolving (or not evolving) to mitigate these factors. Inventory classification has also proven successful in managing appropriate inventory levels. This is often done through an ABC analysis and inventory and replenishment levels are automated in accordance with these classifications to eliminate the guesswork. ABC classifications can vary in complexity, sometimes evaluating up to 12 dimensions in order to create a more complex safety stock plan. Performing regular inventory forecasts has also proven to reduce safety stock levels and associated holding costs. Looking at both historical patterns and future projections can help your team to make accurate predictions. If excess stock levels have become unmanageable and your warehouse is losing money it may be time to consider inventory liquidation. This will help to create a “blank slate” to start from while reducing the level of capital that is tied up in inventory. After liquidation strategies have been utilized, many warehouse manager are implementing automated replenishment strategies like those discussed earlier. Utilizing technology to improve inventory visibility has also helped many supply chains. Warehouse management software is the most common form of technology used. These WMS technologies are also helping to implement and automate exception rules which are especially critical for high value and high complexity inventory items. To learn more about inventory optimization techniques used in the supply chain or about technology available contact Datex experts today at 800933.2839 ext 243 or marketing@datexcorp.com.