Together these model random behavior across the supply chain, factoring in probabilities. This technology anticipates where things could veer off course, hedging for daily demand and supply volatility. Then it generates inventory strategies to minimize the impact of that "noise" (fluctuations) on customer service, defining the precise relationships between inventory behavior and the target service level for each individual SKU location. The result is a sustainable process that delivers high service levels with an efficient cost structure.
"Calming" the Supply Chain
The result is also a "calmer," less costly supply chain. Inventory optimization systems quiet the noise — the unexpected demand, the breakdowns in supply or logistics, the complications introduced by manual intervention.
That's another reason why customer service pays. Since inventory optimization systems precisely target inventory and "calm" the supply chain, companies don't blindly overstock or blindly expedite when there is a stock-out. These companies buffer where there is likelihood of demand and sales and as adequate service level has to be guaranteed. It not only maintains high fill rates and increased sales, it also reduces overall inventory and frees working capital through the delivery of an optimal mix of inventory across the supply chain.
Sales, margin contribution and customer retention rates go up; inventory, expediting and operational costs go down; and supply chain personnel can concentrate on forward-reaching planning and optimization. Demand-driven inventory optimization can get you to those new levels of efficiency and your supply chain under control.
So join the 99+ percent club. Membership is not only free — it pays. "Companies must drive global supply chain performance through consistent customer service metrics. Subordinate all other metrics under this key metric," says Tim Payne, from the March 31, 2006 Gartner Report, "Five Key Themes for Balancing Customer Service with Efficiency in the Supply Chain."
About the Author: Joseph Shamir is the CEO of ToolsGroup, a company that provides inventory optimization and forecast microallocation for demand-driven supply chains. Shamir has more than 20 years of business experience in supply chain and manufacturing, and is a specialist in advanced modeling techniques for planning and optimization. www.ToolsGroup.com.