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- Sept. 7, 2012 -


Supply Chain Graphic of the Week: Understanding Inventory Optimization


Ability to Holistically Optimize Inventory Targets Across Supply Chain Tiers Sets IO Tools Apart from APS Software


By SCDigest Editorial Staff



Inventory Optimization (IO) software is an increasingly popular tool to drive out and "right size" inventory across the enterprise - yet it is still relatively understood by most supply chain professionals.


In a recent Videocast on our Supply Chain Television Channel on medical equipment giant Medtronic's success with IO, Dave Strothmann, principle in SAP's supply chain planning group, preceded the Medtronic case study presentation from Tim Boos with an overview of how Inventory Optimization software works and delivers value.


That included the graphic below, which compares traditional methods to create inventory targets with the approach and capabilities provided by IO solutions.



Source: SAP



The most prominent difference between Inventory Optimization tools and traditional approaches, including Advanced Planning Systems (APS), is that IO looks across tiers in the supply chain to recommend inventory levels holistically. APS systems, on the other hand, are really only able to optimize inventory levels at a single tier or even a single node. That can result in too much and often even too little inventory for a given SKU, adding cost or risking lost sales.


IO tools generally also look at demand and inventory through use probability techniques, especially for slower moving SKUs that are famously hard to forecast. This can help companies better manage supply chain variability.


Inventory Optimization may not be for everyone, but it is common for companies to achieve or exceed the 6-8% reductions in inventory, depending on the business unit, that Medtonic is realizing from IO. That adds up to real money.


To view an on-demand version of the broadcast or download a copy of the slides, go here: Achieving Powerful Results at Medtronic with SAP Enterprise Inventory Optimization.


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