Skip to main content

5 Tips for Successful Inventory Optimization

Inventory is an important element in your overall strategy for success, yet it can also be the cause of resource depletion if you don’t maximize inventory optimization. What was once a theory stressed in the classroom is now a practical approach to business management. The good news is that inventory optimization is applicable in every industry, driving an average of 10 to 20 percent reduction in total inventory, reducing your costs and creating a more efficient environment. If you want to achieve inventory optimization, follow these five tips for success.

Inventory Optimization Tip 1: Successful Business Process Engineering

Specific processes need to be in place internally if you hope to achieve inventory optimization. Successful business process engineering, six sigma and lean manufacturing are all critical elements in inventory optimization. Each focus helps to establish a robust relationship between the inputs and outputs of the supply chain. These approaches to manufacturing also create the necessary foundation to accelerate the benefits of inventory optimization throughout the organization. Case New Holland exercises this approach to inventory optimization and has realized a 20 percent reduction in total inventory.

Inventory Optimization Tip 2: Remove Gross Imbalances

To achieve inventory optimization, it is important that you first remove gross imbalances between your supply and demand. This forces you to make capacity levels and material plans for purchasing more closely match the anticipated demand, driving more emphasis on the proper setting of inventory targets. Gone are the days of excess production capacity and the stockpiling of leftover inventory builds to address demand fluctuations. Today you must be able to meet such fluctuations with inventory targets developed through scientific formulas. By following this strategy, Hewlett Packard has realized more than $130 million in inventory savings across the board.

Inventory Optimization Tip 3: Metric Adoption

If you hope to achieve inventory optimization within your organization, you have to drive the overall adoption of the appropriate metrics, including cash-to-cash and service level cycle time. These metrics require orientation of the supply chain and can be significantly improved when inventory optimization is in place. Metrics and inventory optimization work together to create a more efficient and cost-effective environment across all product lines. Proctor & Gamble realized the benefits when it was able to reduce overall inventory levels by $100 million within its beauty division.

Inventory Optimization Tip 4: Software

You must have robust software in place if you hope to achieve inventory optimization. This software must be able to address complex problems across your global supply chain networks. This software has to go beyond advanced planning and scheduling as your inventory challenges demand more than just APS math. Instead, they require a focus on methods that employ stochastic nonlinear integer solutions. Microsoft leveraged this capability and increased its inventory returns by as much as 20 percent, while also increasing its fill-rates by 7 percent.

Inventory Optimization Tip 5: The Approach is both Strategic and Tactical

When both strategic and tactical planning levels are working in tandem, you can support a successful move to inventory optimization. From the tactical approach, inventory goals are set weekly or monthly according to the variability in your supply and demand. At the strategic level, a snapshot of the tactical solution is instantly available to answer questions and make mission critical decisions. The data is readily available and the resulting outcome allows for implementation in the next attempt at a tactical solution. Specific divisions within the Federal Government use this approach to inventory optimization with the help of Supply Chain Acuity, a consulting firm.

The benefits to inventory optimization are significant, especially the cost savings and improved efficiency within the warehouse. By following these tips within your own environment, you’ll be better positioned to achieve inventory optimization.