Supply Chain Inventory Optimization: Considerations, Methods and Choosing the Right Software



We’ve written extensively on the challenges of managing inventory within the supply chain. Inventory optimization is, in essence, a practical exercise in balancing capital constraints with meeting target service levels. Organizations must consider a myriad of factors that add complexity to supply chain planning, including supply and demand volatility, fulfillment across multiple channels, product life cycles, raw material availability, disruptions from natural disasters, corporate mergers, and even the simple cases of lost or damaged stock. How can supply chain managers overcome this complexity and optimize inventory levels at any tier of the supply chain?

Considerations for Supply Chain Inventory Optimization

In considering how to optimize your inventory, it helps to be extremely precise about what, exactly, you’re trying to optimize, and whether or not you have the technological capabilities necessary to meet your requirements. Start by asking yourself a few questions.

1. Will All of Your Systems Work Together?

Ideally, your inventory management solution will be user-friendly while also supporting robust integration with other systems you’re using, and cross-functional collaboration throughout your business. Most reputable warehouse management systems (WMS) already contain inventory control functionality and can also be integrated with other systems you’re using to scale your supply chain, from a transportation management system (TMS) to an Enterprise Resource Planning (ERP) system.

2. What Types of Technology Will You Need?

There are 3 core technologies every supply chain should be using in this modern, digital age:

  1. Analytics: Predictive analytics can be used to create seasonal and historical models of inventory data for more accurate demand forecasting. Forecasting helps with everything from budgeting to marketing and customer service. 
  2. Automation: Voice picking technology, barcoding, conveyor lines, RFID readers and other automation solutions can shorten production lead time by replacing many of the most time-consuming, error-prone warehousing tasks.
  3. Cloud: The cloud allows your entire team to track, in real-time through a centralized data source, inventory data from multiple locations and sales channels. This guarantees transparent reporting, improves quality control procedures and generally keeps your data more organized.

3. Which Type of Inventory System Do You Need?

Perhaps the most important consideration of all is which type of inventory system you need. There are two main types: single-echelon or multi-echelon.

Single-echelon focuses on balancing inventory in a single location, one part or product at a time. It is most commonly used in organizations manufacturing customized, singular products or parts. With only a single distribution center involved, it is easier to determine safety stock levels, reduce lead time variability and handle potential changes to production. 

Multi-echelon inventory optimization is a more holistic approach and works best for organizations manufacturing large volumes of similar stock across multiple distribution centers (think consumer goods like shoes or electronics). This approach takes into account customer demand variability at each node across the entire supply chain network to minimize inventory costs while meeting service-level goals.

Optimizing Your Inventory on an Ongoing Basis

Once you’ve decided on the best inventory control technique(s) to use throughout your supply chain, here are 5 things you can do to optimize it on an ongoing basis.

  1. Optimize your warehouse layout. Whether you’re trying to maximize storage space, create more efficient picking routes through the warehouse, or avoid traffic jams in the aisles, a good warehouse layout can yield tremendous benefits for worker safety and shipping efficiency.
  2. Implement contingency plans for emergency stock situations. Maintaining safety stock levels and evenly distributing inventory across all warehouses can help you anticipate stock shortages, excesses and dead stock.
  3. Track the right inventory KPIs and make sure your inventory management or warehouse management system supports advanced KPI reporting. Tracking the right KPIs keeps your forecasts relevant, while KPI reporting keeps everyone in your warehouse updated on product movement.
  4. Conduct continuous and periodic inventory audits to help prevent problems with incorrect shipments, mislabeled stock and any procedural issues with quality control.
  5. Carefully monitor ordering and carrying costs for more accurate budgeting and to free up working capital.

Supply Chain Inventory Optimization with DATASCOPE WMS

If your supply chain is dealing with inaccurate forecasting, too much dead stock, lack of automation, no analytics reporting mechanisms, or struggling with simple miscommunication between suppliers and warehouses, DATASCOPE WMS can help.

Completely cloud-based, our software contains a number of useful inventory control modules that offer you complete visibility into your inventory levels at every warehouse and distribution center in your network. Your entire team can quickly access, view and share purchase order histories, shipping records, bills of materials and fully customizable KPI reports from a single, centralized location.

If you would like to learn more about our inventory optimization solutions, or if you want to try our software firsthand, schedule your demo today!

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