So, an efficient frontier is like reality: you can move along it, but you can’t alter it. Or can you?
Multi-echelon inventory optimization (MEIO) lets you step into new territory, a new efficient frontier, that establishes a previously unavailable relationship between inventory and service level. In fact, you could say that any MEIO initiative is an attempt to alter reality: in this case, inventory reality. You want to jump off your current curve onto a whole new curve that represents a truly better world. In this new world, less inventory is required to produce higher service levels than you’ve been able to achieve in the past.
By modeling the end-to-end supply chain, MEIO determines new ways in which inventory pools at each stage, or location, should be managed to best serve the needs of other stakeholders occupying other supply chain tiers. MEIO initiatives discover the optimum amount and placement of inventory across the entire interdependent network.
Planners can use “what-if” scenario analyses to adjust the tradeoff between customer service and inventory cost over time to perfectly match the risk profile your organization is comfortable with.
With its uniquely comprehensive approach to both strategic and tactical inventory held across the supply chain, MEIO creates better trade-off curves. These new realities mean the supply chain team delivers higher levels of service at lower inventory cost for any cost vs. service goal. This creates a positive feedback loop that drives continuous improvement for years.
By shifting the efficient frontier, I have seen companies reduce their working capital more than 30 percent, translating into tens of millions of dollars in savings annually.
How good is life on the frontier in your supply chain? Are you ready to boldly go where few supply chains have been before?