Dell, Apple, your local grocery store — all these companies share a common concern: supply chain management. From the initial forecast to final delivery, coordinating activities in a supply chain is a big challenge. But if you do it right, the ROI is huge. Usually the challenge boils down to building the right capability in your organization, which means having the right people and the right tools.
Investing in a new software package and a team of supply chain analysts, however, is a serious undertaking, and there’s no one-off solution. Should you focus on forecasting, inventory optimization, logistics, supply chain simulation? An article by Sridhar Tayur in Supply & Demand Chain Executive points out that inventory optimization is probably the best place to start, and gives a $1 billion example to back it up:
Given the enormous benefits at stake [by optimizing inventory], it’s no surprise that a recent survey by Aberdeen Group places inventory management software at the top of the list for supply chain technology investments. Within that category, the highest priority is clearly multi-stage inventory optimization, which generates optimal inventory levels for each item across each of the stages or tiers within an organization’s supply chain network. More than 80 percent of respondents cited multi-stage inventory optimization as a top priority, nearly twice the number who named any other type of inventory management technology. [...]
A case in point is Deere & Company’s Commercial & Consumer Equipment Division, which implemented a solution to optimize inventory levels for more than 300 commercial and consumer equipment products held at 2,500 North American dealer locations, plants and warehouses. To do so, the software considers 52 million variables and 26 million constraints. In four hours each week, the system generates optimal targets [target inventory levels] that have enabled Deere to reduce inventory by more than $1 billion, while significantly improving on-time shipments from factories and maintaining customer service levels at 90 percent or better.
The $1 billion in reduced inventory means that Deere is now free to invest that much cash elsewhere in the business. With that in mind, a few million dollars doesn’t seem like too much to invest in optimization software and supply chain analysis team.
