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What You Need to Know About Inventory Optimization

, | March 27, 2023 | By

Business man managing their inventory on a tablet while standing inside of a warehouse

Inventory optimization focuses on matching supply volume to customer demand, a crucial aspect of any successful business.

Optimizing this process balances the cost of holding inventory with overall goals and service level objectives. It also helps organizations prepare for volatility or possible supply and demand disruptions. Human behavior during and after events like the 2020 COVID-19 pandemic can be difficult to predict, and it can negatively impact economies on a global scale.

A well-designed inventory optimization process increases working capital while also safeguarding businesses from waste and unexpected supply issues. 

What Are the Major Challenges of Inventory Optimization?

Achieving the right balance between excess supply and product shortages can be difficult. Incorrect calculations and predictions will have a major impact on a company’s profitability and return on investment. Demand forecasting is one piece of the puzzle, but traditional approaches to these predictions are far from perfect.

Let’s take a look at some of the challenges of inventory optimization.

1. Surges in Consumer Demand and Short Product Lifecycles

The digital landscape has changed how consumers make purchases. On-demand shopping has made purchasing more convenient, and modern customers expect items to be stocked and shipped quickly.

A staggering 2.48 billion people across the globe shopped online in 2021, and e-commerce sales reached an impressive $5.2 trillion worldwide. This number is expected to increase to $8.1 trillion dollars annually by 2026. 

Supply chain leaders must plan ahead by forecasting demand and buying or building inventory to meet demand. Unexpected surges in consumer demand often lead to inventory shortages and lost revenue. A drop in demand beyond what was forecasted leads to excess inventory and slow inventory turnover.

Because inventory optimization is dynamic and complicated to manage, it’s difficult to predict using traditional processes. When it’s incorrect, businesses either lose revenue in lost sales or tie up cash in excess inventory.

2. Increased Competition

It’s easier than ever to launch a business in the U.S. and tap into well-connected supply chains. This ease of access has led to a significant increase in competition across many different industries. 

3. Unexpected Local and Global Events

2020’s COVID-19 pandemic highlighted the severe fragility of U.S. and global supply chains, and many industries are still in the process of recovering. Additionally, natural occurrences such as hurricanes, earthquakes, and winter storms can cause massive amounts of destruction and chaos on a local scale, blocking ports and damaging important infrastructure.

Recently, the February 2023 earthquake that took place in Turkey severely damaged the country’s Iskenderun port, a large harbor located in Hatay Province. The natural disaster devastated the country and resulted in major disruption to container flows, while power outages and other bottlenecks jeopardized the nation’s fragile infrastructure. 

INLINE: In this webinar, SimWell introduces an approach to identifying unknown risks in your supply chain with advanced analytics. 

4. Outdated Technology and Methods

Manual entry or paper-based inventory tools are unable to handle large volumes of data, and human error can also lead to costly mistakes. Research suggests more than 90 percent of spreadsheets have errors, and half of spreadsheet models used in large businesses have “material defects.”

This can lead to expensive and time-consuming accounting and payroll errors, inventory mishaps, and more.

How Can You Boost Your Company’s Inventory Optimization Process?

When it comes to boosting your company’s inventory optimization process, the right people, technology, and processes matter.

SimWell takes the guesswork out of inventory optimization. An advanced analytics company, SimWell’s team of supply chain specialists provides inventory optimization solutions.

SimWell’s technology captures, processes, and analyzes a wider range of details than traditional analytical models, providing increased accuracy and more precise demand forecasting. This helps prevent overbuying, excess waste, and loss of revenue.

SimWell’s technology helps supply chain leaders refine their inventory and ordering policies, whether it’s a static process once a year or a just-in-time delivery strategy.

SimWell also provides network optimization to help supply chain leaders determine their ideal network, helping companies optimize their footprint and increase service by finding the right size, locations, and inventory deployment strategy.

An important aspect of supply chain strategies is building a more robust supply chain. SimWell specializes in scenario planning to understand risk across network design options. Its simulation modeling technology provides a digital representation of complex supply chains, allowing leaders to make risk-free changes in the digital supply chain and observe how those changes impact the operation.

SimWell solutions can be used before an existing system is updated or a new system is developed. They identify bottlenecks, prevent under- or over-utilization of resources, and optimize system performance.

Streamline Your Inventory Optimization Process With Simwell

SimWell helps companies solve their business challenges in a risk-free environment, empowering leaders to design their supply chain before making large investments. With the ability to partner with businesses to provide turnkey solutions, software, and training, SimWell assists organizations like yours to improve the inventory optimization process. 

Ready to get started? Contact us today. 

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