Network Design and Multi-echelon Inventory Optimization

Usage Patterns of End-users in Enterprises


However, the use of multi-echelon approaches is still maturing. In fact, around 40 percent of the companies that report using multi-echelon tools are, in fact, not taking a pure multi-echelon optimization approach. Instead, they are setting customer service levels for each level in the supply chain and separately calculating the inventories rather than obtaining the inventory based on global cost and service-related calculations.

In addition, 60 percent of companies are planning at the finished goods regional distribution warehouses, and 53 percent are planning at the manufacturing and assembly locations (Figure 3). In other words, very few customers are planning at every level in the echelon. Still, the ability to consider variability and the ability to focus on the critical levels of their supply chain based on their industry (manufacturing intensive or distribution intensive) results in better performance through usage of multi-echelon solutions.

How Old Is Your Inventory Policy?

Another drain on financial performance is that companies’ inventory strategies are rarely kept up to date with real-life conditions. Nearly 50 percent of companies (both distribution-intensive as well as manufacturing intensive) say they update their inventory strategies on an annual or less frequent basis. This frequency of analysis is not sufficient, given today’s global sourcing and contract manufacturing strategies, which create more variability. Survey results show that companies that are above average inventory performers are more than 2.5 times as likely as other companies to update their inventory strategies and policies multiple times a year.

Take part in new Aberdeen research on demand management practices by taking this survey, please click on the following link: www.aberdeen.com/survey/dms.

About the Author: Nari Viswanathan is research director in Aberdeen Group's Supply Chain & Logistics Practice. Viswanathan specializes in order-to-delivery and sales and operations planning processes.

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