Three Rules of Inventory

March 16, 2012

Inventory Optimization


Bryan Ball, vice president and principal analyst, supply chain management, Aberdeen Group, has outlined three rules to follow in his latest report, “Inventory Optimization - Impact of a Multi-Echelon Approach.”

    Rule 1: Always have enough
    Rule 2: Never have too much
    Rule 3: Never let Rule 2 overrule Rule 1

Inventory-Optimization-Follow-the-Rules.jpgInventory optimization's business mission is to right-size an organization's inventory investment to meet a given service target. But what approach most helps supply chain professionals find that perfect balance between service and investment? This Aberdeen research report finds that companies utilizing multi-echelon inventory optimization (MEIO) have a more comprehensive understanding of their inventory and are twice as capable as others at balancing cost and service levels across their global networks.

The report indicates the leading driver for inventory optimization adoption is the need to reduce inventory carrying costs, and finds multi-echelon inventory optimization users are twice as likely to adopt advanced supply chain capabilities such as inventory segmentation, replenishment and event management than non-MEIO users.

Companies employing multi-echelon inventory optimization:

  • Saw a 28% increase in inventory turns
  • Were twice as likely to tie target-setting to the S&OP process
  • Experienced impressive boosts in cash-to-cash cycle and perfect order improvement.
According to author Bryan Ball, “As supply chains become more complex, the need to address end-to-end challenges effectively through the use of MEIO solutions will become a necessity, not an option."

We have seen impressive results from the adoption of MEIO including savings in the order of $100 million and a 27% reduction in finished goods inventory across many industries. The key is your ability to follow the rules and, with the right technology in place, drive measurable improvements across your supply chain.


John Brewer is Director at Logility. He can be reached at blog@logility.com.

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