Do you believe that inventory optimization is necessary for the operational and financial performance of the organization? What experience/s have you or your supply chain team had with inventory optimization initiatives and did they prove to be successful?

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Founder & Supply Chain Expert, Oakmont Supply Solutions in Consumer Goods, 2 - 10 employees
I would actually phrase it a bit differently - inventory optimization is crucial for the operational health of a business.  There are many very successful organizations (from a sales perspective) that have terrible inventory health - after all, inventory covers a multitude of sins.  

Inventory Optimization can be a huge advantage or any business that sells a material or finished good. If your business has a huge inventory overage (thus poor inventory health), you will not only see the working capital impacts on the balance sheet but also the harder to calculate inventory carrying cost surges.
4 2 Replies
Sr. Director of Supply Chain in Healthcare and Biotech, 10,001+ employees

I am going to steal your phrase "inventory covers a multitude of sins" - SO TRUE

Founder & Supply Chain Expert, Oakmont Supply Solutions in Consumer Goods, 2 - 10 employees

Please do - I have an awesome river/rocks image that I took from a leader many years ago that is also a great analogy!

Sr. Director of Supply Chain in Healthcare and Biotech, 10,001+ employees
Inventory optimization and network planning have a massive impact on financial performance. No question here. Based on your cadence, you know how to support the sales team with the correct mix of product and quantity. In addition, it helps avoid back orders and can be an enabler and catalyst for high customer satisfaction.  

What worked for me was constant monitoring (Manual or Automated); if you have a Build to Stock business and if a big order drops in, you can risk falling below the safety stock levels or completely running out of product. I work in healthcare, and there are certain products we always need to keep on the shelf as they are deemed life saving devices.   
4 1 Reply
Founder & Supply Chain Expert, Oakmont Supply Solutions in Consumer Goods, 2 - 10 employees

Great comment  - especially the part about Build to Stock inventory management.  Good reminder that inventory optimization looks different depending on your IM strategy - make to order, make to stock, JIT etc.  

Chief Operations Officer in Consumer Goods, 51 - 200 employees
On a theoretical level a well-optimized inventory system can help businesses in several ways:

Reduce Costs: Inventory carrying costs can be significant, including costs related to storage, handling, insurance, and potential depreciation. By optimizing inventory, a company can minimize these costs.

Improve Cash Flow: Money tied up in inventory is money that's not being used elsewhere in the business. An optimized inventory frees up cash for other business needs.

Enhance Customer Satisfaction: By ensuring the right products are available at the right time, inventory optimization can improve customer satisfaction and loyalty, leading to repeat business and referrals.

Increase Sales: Avoiding stockouts through inventory optimization means fewer missed sales opportunities.

On a more practical one:

- it's very important to keep track of sales "reasons" - without proper tracking of promotions it's ery difficult to manage demand properly (rotation varies and is not consistant)
- it's crucial to work both on rotation and aging of the products
- it's also beneficial to cut "long tail" for example "evertyhing over 180/365 days "must go"
CTO in Software, 11 - 50 employees
This is a very good question. Surely, inventory is a necessary function to mitigate risks (risk of stopping our manufacturing tools if no input, and risk of customers being not satisfied if no output). This mitigation has a cost. It blocks cashflow consuming space, carrying insurance and more. Hence, it impacts the financial performance of the organization negatively.
However, it ensures having the right input at the right time for our manufacturing and the right output at the right time for our customers. Hence, it avoids scenarios that can have a severer financial impact on the organization.

I like the points of view of   and  oriented towards outbound inventory. I would like to humbly participate with Inbound inventory. Inbound is about getting are inputs manufactured, shipped and received. If done with a lean approach, inventory could be null. However, suppliers may encounter disruptions such as carriers and forwarders on trade lanes. Our inventories exist to ensure our manufacturing assets to run despite the upstream disruptions and exceptions.

This approach can be flipped with outbound with our own manufacturing disruptions and carriers/forwarders ones.

The question of optimizing  (eliminating) inventories with a root cause approach is therefore how to reduce/eliminate the disruptions/exceptions along the value-chain from suppliers to customers?
Director of Supply Chain in Manufacturing, 1,001 - 5,000 employees
I found systematically cases with a high level of inventory with relative stability of total volume/value vs. all other dynamics of supply chain (demand, supply, capacity). When your stock levels are systematically stable on high level (DOI/Value), despite important SC dynamics it is very likely result of system/human influence combined with dysfunctional stock (plenty of missing things while overstocked parts exist). This equilibrium in chaos is always attention point hiding plenty of reasons for the dramatic stock existence out of functional needs (to buffer demand/supply variation and diminish impact of volatility for better service). Than the job of Inventory Optimization starts...
CEO in Software, 11 - 50 employees
📦💼 Inventory Optimization: A Game-Changer for Operational and Financial Performance! 💯

As a supply chain professionals, we firmly believe that inventory optimization is crucial for any organization's success. It's not just a theory, but something we've experienced firsthand at SupplyChainWise when supporting clients big and small!

Transparency across the supply chain is key to making informed decisions and achieving peak efficiency. At SupplyChainWise, we emphasize transparency as a cornerstone of our approach. 🌐✨

Non-optimized inventory holding can have serious repercussions, impacting both operational and financial performance. Excessive inventory ties up valuable capital, increases holding costs, and can lead to obsolescence. In contrast, stockouts can result in missed sales opportunities and dissatisfied customers. It's a delicate balance that requires smart solutions. ⚖️

At SupplyChainWise, we've witnessed remarkable benefits with inventory optimization initiatives. By leveraging advanced technology and data-driven insights, we've seen reduced carrying costs, minimized stockouts, and improved order fulfillment rates. The optimized supply chain fosters better customer satisfaction and unlocks opportunities for business growth! 🚀📈
Sustainable Supply Chain Adviser in Healthcare and Biotech, Self-employed
I really could not add much more than my peers here below, but can only reconfirm what they said already.
Based on my experience, inventory optimisation is not a project (or subsequent, but distinctive projects), but a continuous monitoring and adjusting activity based on how the business is doing and is very much part of the strategy of the business along the full value chain.

I'm happy to see that this is still on the menu as a topic as many businesses still haven't managed to actually manage their inventories!!
Founder, Self-employed
Good question. I enjoy reading the comments. Thank you for sharing.

Yes, definitely! I have seen companies struggling with too much inventory and went under if could not manage it properly.

Inventory optimization is achievable and it needs to maintain the optimal balance on a regular basis regardless of manually and automatically. This is where AI/ML become helpful. It’s been here in some supply chain optimization solutions and shown successful results.

Many companies don’t have the accurate data that reflects the actual inventory. That’s where the mess comes from and prevents them to make the inventory optimization work.

Inventory = asset, the faster you can turn it into cash the better cash flow you get. Too much inventory = too much capital tied into your operations.
Supply Chain Manager, Self-employed
We believe it is and this topic is one of the values we provide customers- simply put, inventory being held by the customer represents an opportunity cost by negating the customer's ability to invest those assets elsewhere and creates a need to provide resources to manage the inventory efficiently.

I recommend partnering with your suppliers to know your usage, lead times, what the supplier can hold on hand for you, and understand what inventory is mission critical to your organization (if you don't have it when it is needed, your operations shutdown). This is an activity we complete on a regular basis with the customers who manage their inventory through vendor managed inventory- as the data should be more readily available.

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