Inventory Optimization Technology Starts to Go Mainstream

August 4, 2009 from SupplyChainDigest – “Inventory Optimization technology, a relatively new category of supply chain software, has started to go mainstream. That’s the conclusion of a new report by IDC’s Manufacturing Insights, which finds that Inventory Optimization is especially valuable in an economic downturn, when the cost of making poor inventory decisions is especially high…”

180 View (written by Lawrence Young) – While we have heard the term “Inventory Optimization” mentioned often in software demonstrations and marketing collaterals, we have to-date seen very little new in the way of software offerings for mid-market distribution and manufacturing companies.

Most inventory replenishment models for mid-market ERP software still utilize the ‘min/max’ model which has serious limitations due to the static nature of the drivers of the model i.e. users are forced to periodically refresh each inventory SKU’s minimum and maximum values based on current historical usage, which can be challenging if the company has hundreds or thousands of SKUs.

A few software products utilize dynamic replenishment models that automatically recalculate each SKU’s optimal order point by automatically taking into account past usage as well as other factors such as seasonality, recent vendor lead time and delivery performance data, etc. These dynamic models are often based on proven methodologies such as Distribution Resource Planning and Gordon Graham. Unfortunately, the deployment of these models has historically resulted in limited user acceptance and success since the software was often perceived to be cumbersome to use and not overly user-friendly.

While we haven’t seen any significantly better inventory replenishment software in mid-market ERP software up until now, we can only hope that this much-needed tool becomes available soon. So for now, it’s ‘wait and see’. But remember, there’s always ‘Tomorrow’, as Little Orphan Annie sang!