Inventory optimization (IO) solutions are meant to help managers match supply volume to customer demand over a large number of stock keeping units or SKUs. One significant drawback of single-echelon solution is that safety stock can only be managed at the individual facility level, which can result in excessive inventory if a company operates in multiple functions. Multi-echelon solutions allow safety stock to be managed and optimized over the entire network & are required for complex situations in which facilities are considered as parts of a network. With the time, business houses had realized the value of inventory optimization for improving gross margin. The potential benefits are substantial, albeit many managers had conveyed that cutting back too much on inventory can cause delays in order fulfilment and hence, there is a high chance of increased customer attrition. However, a recent survey revealed that best-in-class firms actually improve service levels and financial performance through their use of inventory optimization solutions. Hence, balancing inventory and service levels doesn’t have to be a win/lose exercise.
Author Al Bredenberg had given a detailed view on this aspect in his recent article. To read, visit the following link: