For supply chains, it can be challenging to balance inventory levels with service-related goals. They may not accurately understand and account for customer demand or market volatility. Excess inventory that isn’t properly balanced leads to wasted capital and poor profitability. That’s where multi-echelon inventory optimization (MEIO) can help.
Why excess inventory is not the right approach
Supply chain managers struggle with optimizing inventory and are faced with globalization, complex products, personalized preferences, and meeting a fluid customer demand. All of this has to be balanced in strategic ways to ensure that inventory levels are optimized and stockouts never occur. Then there’s the concern with overstocking and inventory that’s not moving. It can become out-of-date, out-of-season, and out-of-fashion quickly.
Imagine a manufacturer with huge amounts of inventory levels. They think they are accommodating customers, but are actually sacrificing resources and wasting working capital. To try to anticipate customers’ needs requires maintenance, production, human labor, inventory, wholesalers, and more. There is a better approach.
How MEIO software helps supply chains
Echelons are stages where inventory is first held and then passed through inventory points. Multi-echelon optimization software helps to free up capital that can be lost in excess inventory levels by maximizing service levels at every stage based on changes in lead times upstream.
Immature companies commonly use 20-day forward coverage or similar ERP-based planning but can’t account for their demand uncertainty. They might also use inventory segmentation that groups SKUs into categories that are too broad, which doesn’t accommodate variations and seasonal changes. Hence, the reason a lot of supply chains have switched to demand planning software and demand forecasting software.
Benefits of MEIO
With multi-echelon inventory optimization software, managers can view inventory through the entire supply chain, increase their return on investment, and transform manufacturing operations. MEIO solutions use existing sales data to lower costs and increase service levels. It doesn’t use gross approximations for predicting demand, but uses algorithms that optimize inventory levels even with slow moving products.
Supply chain planning software that includes MEIO can reduce excess inventory levels in the entire supply chain network through algorithmic optimization calculations and machine learning. These can give foresight into base inventory policies that are not emotion-based, which can lead to human error. Additionally, MEIO can evaluate the “what-if” scenarios that typically plague supply chains to help them understand service and cost alternatives that will put the right stock levels in place and release millions in working capital.
Optimized service levels and fewer inventory errors
For supply chains, the idea of having the least total inventory with the best possible service sounds like a dream, but it’s possible with multi-echelon solutions. To help optimize service levels and decrease inventory, MEIO works by optimizing the entire supply chain as it focuses on the exact fluctuations in inventory costs. It can help calculate ideal stock levels and locations, as well as determine the size of inventory stock buffers without falling short of customer demand or carrying unnecessary stock levels.
MEIO considers demand volatility, uncertainty, lead time, and other factors while helping to strategically plan for changes in demand and seasonal requests. If supply chains don’t have MEIO in their retail supply chain software or supply chain planning software, they should reach out to their supply chain software company rep to request inventory optimization software that includes MEIO tools.
Free up more working capital
MEIO for inventory optimization lowers costs while optimizing interdependencies throughout the supply chain. MEIO frees up working capital and enables organizations to model trade-offs, between service performance, risks and costs. For more information on how multi-echelon optimization (MEIO) can help supply chains, contact Vanguard Software.
Vanguard IBP is the leading Integrated Business Planning platform, leveraging predictive analytics, artificial intelligence, and advanced automation.