What is Inventory Optimization?
Inventory optimization is a way to meet critical business goals by ensuring adequate stock of products and raw materials to balance customer service objectives and capital investments.
Inventory Optimization in the Demand-Driven Supply Chain – A Crucial Competitive Advantage
So, what can inventory optimization do for your business? In short, it makes your business more competitive.
Companies with sophisticated inventory optimization systems can enhance their profitability by minimizing inventory costs. These systems also help across the inventory management spectrum in general, by ensuring companies can effectively source, manage, and deliver a wide range of products to meet fluctuating demand.
Inventory optimization empowers businesses to resiliently maintain profit amid supply chain disruptions and demand swings due to peak seasons, pandemics, natural disasters, or even the weather.
Making Inventory Optimization a Reality
Challenge
A manufacturing client forecasts demands and plans their inventory using manual spreadsheet-based methods, but they were not sure their method was truly optimizing inventory. The client wanted a demand-driven inventory optimization solution that would provide accurate predictions of future sales and the most cost-effective raw material inventory needed for production.
Our Approach
By leveraging scalable cloud platforms and machine learning/ AI models, we ingest historical sales and external data to predict demand. With these forecasts, we used mathematical optimization to devise the optimal inventory strategy. This strategy increases profit by maintaining appropriate levels of raw inventory to ensure projected demand levels can be met.
Outcome Summary
– Inventory optimization enhanced the balance between customer service and inventory costs, improving service quality by 30-50% and reducing inventory carrying costs by 25-45% in one case study - see our blog to learn more.
– Demand forecasting performance improved by over 40% (MAPE error reduction) using AI models that simultaneously provided accurate time-series forecasts across many products.
– Inventory optimization reduced costs and increased profits by over $100,000 per month or over 60% compared to a heuristic-based solution for a single line of business.
– The model generated solutions 100x faster than spreadsheet-based methods, drastically reducing the manual effort needed to create up to ten thousand forecasts and inventory recommendations.
– The solution sent an email alert when the business needed raw material inventory replenishments, enabling automated inventory management.
– Value analysis flagged products by characteristics such as anticipated profit/loss to support execution of the inventory policy.
– The solution analyzed key customers to set appropriate customer service targets, e.g., by projected revenue and profit.
– Scale-up of this solution to other lines is likely to dramatically scale the increase in profits.
How to Improve Your Business
Businesses need solutions that can rapidly analyze, predict, and adaptively tune their inventory for optimal profit or revenue in complex environments.
Demand-driven inventory optimization can improve your business with:
- Robust & scalable demand forecasts
- Optimal execution of inventory planning
- Enhanced understanding of high value ‘star’ products
- Increased resilience against stock-outs with automated replenishment and diversified suppliers.
- Optimal customer service level and inventory cost balance
Aimpoint Digital – Your Data Science Partner
Aimpoint Digital is committed to helping all industries, big and small, unlock the potential of AI, data science, and analytics to transform their day-to-day operations. If you would like to increase your profits using inventory optimization, contact us through the form below to speak with our experts in data science, analytics, supply chain, and inventory optimization.
