Best-in-class organizations are finding ways to balance the tradeoffs between service level and inventory investment—a challenge that supply chain managers from companies of all sizes face. At the heart of many success stories is an inventory optimization (IO) solution that debunks the myth that lower inventory inherently means worse service.
Many supply chain managers can understand the visibility and segmentation benefits that come along with IO solutions, but one benefit often goes unnoticed. Network optimization.
If you want to gain a competitive advantage through your supply chain, leverage network optimization as the hidden value of IO.
Why Traditional Supply Chain Network Design Falls Short
The idea of supply chain network optimization isn’t new. In the past, network design tools could evaluate freight and labor costs to give supply chain managers better insight into inventory statuses. These tools have typically made it possible to make minor adjustments to distribution depending on changing demand patterns.
The challenge is that evaluating decisions on consolidation or shifting capacity are extremely difficult to do—especially as traditional network design tools have failed to address the service aspect of how closing/moving facilities would affect critical channels.
With 64% of companies identifying improved service as their top supply chain challenge, it’s important to upgrade network optimization capabilities and avoid issues such as:
- Decisions being made with cost in mind without realizing that they could drastically increase inventory to meet delivery times.
- Taking days or weeks to perform supply chain analysis, leaving little room for “what if” scenarios that can lead to more actionable insights.
- Using spreadsheets to model predictive scenarios—a generally ineffective solution, especially in the wake of big data innovation.
The Hidden Value of IO for Network Optimization Today
Thorough analysis of a supply chain network provides deep insight into a number of decisions, including:
- Plant locations and capacity
- Distribution locations and sizes
- Possible pricing levels
- What products to produce and where
- Inventory levels
- Customer service levels
Today’s more advanced IO solutions bring service visibility into network optimization, helping supply chain managers move decisions further upstream into the planning phase.
The fundamental reason why network optimization is the hidden value of IO is the ability to run “what if” scenarios quickly—in hours as opposed to days or weeks. Automating this process gives supply chain managers a higher-level view of various potential supply chain issues as they try to meet omni-channel demands.
Before execution ever begins, supply chain managers should be able to mitigate issues or modify predictive outcomes. Knowing the impact of a decision before implementing it in the supply chain allows analytics to go from reactive (as in the past) to predictive.
Best-in-class organizations separate themselves from more average companies in this regard. With IO solutions in place to improve network optimization, best-in-class organizations can make more effective decisions on a granular level. However, their network optimization efforts are not relegated to low-level modifications of the supply chain.
Our research found that best-in-class organizations take network optimization a step further, analyzing and adjusting inventory models on a quarterly basis over 30% more often than other companies. By looking at inventory models dynamically, these companies can ensure they are mitigating the business pressure to improve service levels (without sacrificing inventory levels).
If you want to learn more about how best-in-class organizations are using inventory optimization solutions to avoid the classic “having enough but not too much” supply chain dilemma, download our free white paper, Inventory Optimization: Juggling the Tradeoffs Between Service Level and Inventory.