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.
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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