Had To Start from Scratch but Here I go

Thursday, August 13, 2020

Inventory Optimization

A really cool way to take some time and figure out a few new definitions with a little bit more about them.  If you have any comments you can do so below, or if you would like to read more about each things, Google and Wikipedia are a huge help.
  
Let us find out what exactly Inventory Optimization is and how it can be used to help in a impact filled way.  As always I will search 
The following is Seen on Site and credited to (Wikipedia as well as all the wonderful people who took the time to enter the information. Thank you)

Inventory optimization is a method of balancing capital investment constraints or objectives and service-level goals over a large assortment of stock-keeping units (SKUs) while taking demand and supply volatility into account. 

Also MRO Inventory Optimization helps to empower users with an accurate, detailed picture of their MRO inventory performance; and powerful capabilities to enable informed decisions that help improve margins, increase service levels and minimize unplanned downtime. <- Thanks IBM. 

Without inventory optimization, companies commonly set inventory targets using rules of thumb or single stage calculations. Rules of thumb normally involve setting a number of days of supply as a coverage target. Single stage calculations look at a single item in a single location and calculate the amount of inventory required to meet demand.

Every company has the challenge of matching its supply volume to customer demand. How well the company manages this challenge has a major impact on its profitability. In contrast to the traditional "binge and purge" inventory cycle in which companies over-purchase product to prepare for possible demand spikes and then discards extra product, inventory optimization seeks to more efficiently match supply to expected customer demand

APQC Open Standards data shows that the median company carries an inventory of 10.6 percent of annual revenues as of 2011. The typical cost of carrying inventory is at least 10.0 percent of the inventory value. So the median company spends over 1 percent of revenues carrying inventory, although for some companies the number is much higher.

Benefits
Companies have achieved financial benefits by employing inventory optimization. A study by IDC Manufacturing Insights found that many organizations that utilized inventory optimization reduced inventory levels by up to 25 percent in one year and enjoyed a discounted cash flow above 50 percent in less than two years.

Electrocomponents, a United Kingdom based world’s largest distributor of electronics and maintenance products, increased profits by £36 million by using inventory optimization to achieve higher service levels while reducing inventory. Castrol used inventory optimization to reduce finished goods inventory by an average of 35 percent in two years while increasing service levels (defined as line fill rates) by 9 percent.Smiths Medical, a division of Smiths Group, used inventory optimization to better address demand volatility and supply variability, thus reducing the risk of both under stocks and overstocks while smoothing out manufacturing cycles.

I hope this was really helpful

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