Predicting the Unpredictable: Inventory Optimization Software
Inventory Optimization – nine syllables, two words, one concept. It means having what you need when you need it. Too much inventory can cut your profit margin; too little inventory can prevent you from meeting demand and tip your customers toward the competition. Sounds simple: but in reality, the inventory optimization math any supply chain process will use is as important as the metal alloy used in forging a chain of metal links. You can find cheap, plastic chains, and you can find expensive chains formed from strong metal alloys with all kinds of 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 to predict the unpredictable. With the proper tools, you can estimate your inventory levels to maximize profit and minimize waste. Modern software can account for many different variables, the potential outcomes and summarize the choices into a simple set of graphs and charts, allowing the user to pick the best model for their business for each of their product groups.
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. Multi-echelon software, on the other hand, 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 own optimal inventory levels. To put it 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.Learn More
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