Inventory
optimization is the balancing of investments in stock-keeping units and service
goals, while taking into account the volatilities of demand and supply. One of
the major challenges a company faces is matching its supply to consumers’
demand. How efficiently a company addresses this challenge directly impacts the
company’s profitability. Working capital being of utmost importance for any
company, it is important for companies to keep low levels of stock and sell
them quickly. Supply chains today have multiple layers of suppliers and
distributors.
With
each layer adding some safety stock considering service requirements, a
significant amount of working capital is involved. Multi echelon inventory optimization approach involves taking a holistic
approach toward the entire supply chain and considering the impact inventories
have at any given level in the supply chain. It answers where in the supply
chain inventories should be placed and optimizing and updating buffer stock at
all levels. By effectively modeling the entire supply chain from raw materials
to manufacturing and finished goods, multi echelon inventory optimization
creates what-if scenarios and explores alternate suppliers, transport links,
lead times as well as locations. Levels of safety stocks and postponement
strategies having lower cost implications are also verified in the process.
Multi echelon inventory optimization boosts the capability of supply chain
teams in achieving service goals with minimum levels of inventory. With
problems such as stock outs and obsolescence also taken care of, bottom lines
of companies are significantly improved irrespective whether the supply chain
is local or global. The biggest driver for multi echelon inventory optimization
market is the financial losses that companies can avoid using these techniques.
The complexities that multi-level supply
chains present and the need to efficiently allocate resources and increase
profitability is further likely to fuel the growth of multi echelon inventory
optimization market. Investments in inventory being largest liquid asset for
any organization, taking advantage of any technique that can lower inventory
investments while maintaining and ultimately improving service levels are significantly
aiding profitability to the organization.
However, reducing the inventory
should in no way affect customer service levels. Multi echelon approach
addresses this concern by keeping more stock at the outer nodes so that the
customer service level is not affected, while reducing overall level of
inventory. However, for this strategy to effectively work, companies should be
able to forecast customer demands. Inventory optimization process is dynamic,
which requires frequent evaluation. Companies need to review their network
frequently and change policies accordingly. Lack of skilled resources who can
understand and use inventory optimization techniques effectively are hurdles in
adoption of multi echelon inventory optimization technologies.
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The
multi echelon inventory optimization market can be broadly segmented into types
of solutions and industries. The solutions include replenishment, vendor
managed inventory, demand forecasting, purchase order flow management, supply
chain advanced analytics, value chain collaboration, supply and retail
optimization, transportation and logistics optimization and cloud services.
On
the basis of industries, the market can be categorized into consumer goods,
electronics, food and beverages, chemical, retail, and manufacturing.
Geographically, North America has a large market for multi echelon inventory
optimization due to the large manufacturing sector and the penetration this
technology has achieved in manufacturing and processes. With high growth in
manufacturing industries in countries such as China, South Korea, India,
Vietnam, and Indonesia, there is expected to be high demand for multi echelon
inventory optimization solutions and services in Asia Pacific during the coming
years.
The
major companies operating in this market include ToolsGroup, Logic Tools Inc.,
Logility, Manhattan Associates, Inc., Smart Software, Inc., Arkieva, Kinaxis,
Thrive Technologies and Planning Edge Corporation.
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