Inventory Optimization Can Free Up $100M in Cash for Large Firms
As previously noted, inventory optimization is a core capability for a firm that wants to perform at the highest possible level. Inventory is a lifeline of a firm. Having inventory in the right place allows you to meet demand and allows your business to operate smoothly. Done right, an inventory optimization processes can reduce inventory by 10-30% while improving service levels. For a large firm, this can translate in over $100M in inventory reduction. This is a one-time increase in cash flow as well as the on-going opportunity cost of this capital.
The technology to do this, provided by a tool like IBM ILOG Inventory and Product Flow Analyst, allows you determine the correct inventory strategies and levels. It does this based on data you are likely already collecting-- demand, demand forecast error, supplier lead times, supplier variability, order frequency, minimum order sizes, flows through the supply chain, and other factors. You have to get this piece right to get the buy-in of the people in the organization. When people see that the technology suggests strategies and inventory levels that allow customer demand to be met while maintaining service, they are more comfortable accepting the outputs.
But, to make the technology (and savings) stick within the organization, you need a strong process as well. We have found that it is important that the technology fit within the organization. This means that the inventory planners see information that is appropriate to them while the business analysts and managers may see a different view. When we implement an inventory optimization solution across the enterprise, we make sure the workflows are correct for each user, we make sure the solution fits within an overall larger closed loop planning cycle (which may span the year), we make sure the process is dynamic to allow you to adjust as the market changes, and we have even developed inventory optimization "playbooks" that help customers through the entire planning cycle.