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  - May 6, 2008 -  

Supply Chain Software News: What Are the Barriers to Adoption of Inventory Optimization Technology Tools?


It is not the ROI, says Chainalytics’ Jeff Metersky; Companies Sometimes Lack Clear Vision of Inventory Processes and How Decision-Making will Change



SCDigest Editorial Staff

SCDigest Says:
Though the tools have been around in one form or another for a number of years, interest has really taken off in the last 3-4 years.

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Inventory Optimization is a relatively new class of software tools that help companies optimize “multi-echelon” supply chain networks by making better decisions about what levels of inventory to stock where, and how to maximize customer service policies against financial and market objectives.

How does this class of tools differ from Distribution Requirements Planning (DRP), Supply Planning, or other decision-support tools a company may already have in place?

“In these other applications, you’re typically looking at decisions about how many days of on-hand inventory to hold, where to stock your inventory, and even customer service levels as inputs into those systems,” said Jeff Metersky, head of the Supply Chain Strategy practice at consulting firm Chainalytics, during a Supply Chain Videocast™ presentation last week on Inventory Optimization from Supply Chain Digest and the Supply Chain Television Channel. “These decisions are made externally, then used by these other planning applications.”

Inventory Optimization tools actually help make those optimal policy decisions upfront, which are then fed into systems such as DRP, ERP and supply planning for execution, Metersky said.

Though the tools have been around in one form or another for a number of years, interest has really taken off in the last 3-4 years. However, in some cases, the decision to move forward sometimes gets stalled.

“It’s not a matter of ROI,” Metersky said. “The ROI is usually strong, and actually somewhat straightforward to calculate in terms of the benefits of improved inventory levels and customer service levels.”

Gap Between Interest, ROI and Adoption

So, what is the disconnect between estimated ROI and adoption?

“We concluded in our observations that companies often don’t well understand exactly how they are going to take these tools and use them in their organization,” Metersky said.

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For example, companies often don’t have a solid understanding about how decisions are currently made in terms of inventory levels, customer service, and safety stocks, etc., he said, especially across a complex organization.

“You need to understand the processes, you need to understand the people who are doing this work – what roles, what departments, what accountability,” he added. Otherwise, while the benefits of Inventory Optimization may look strong from a dollar and ROI perspective, there is not enough understanding of what questions need to be answered, the true problems that need to be solved, and how the process will change using the new tools.

The first in our series of Inventory Optimization Videocasts is now available on-demand. It can be accessed here: Keys to Inventory Optimization Success. To register for Part 2 of the three part series, go to: Inventory Optimization Videocast Series.

What do you see as the barriers to Inventory Optimization technology deployment? Is it often unclear in companies how these inventory decisions are made?  Let us know your thoughts at the Feedback button below.

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