techwatch
Missing the potential of
inventory optimization
INVENTORY OPTIMIZATION REMAINS A POPULAR TYPE OF
application in distribution these days, but most companies do a poor
job of making the software work for them. That’s the opinion of a
leading expert in the field, Shaun Snapp. Now an independent consultant, Snapp worked as an analyst on an early inventory optimization software implementation in the late ’90s. He has written two
books on the subject: Inventory Optimization and Multi-Echelon
Planning Software and Supply Chain Forecasting Software.
Although inventory optimization (IO) software is a relatively
recent innovation, the science behind it is not. Snapp says the Air
According to Snapp, the use of inventory opti-
mization programs started to take off in 2006.
Since that time, a number of companies have
implemented IO applications, which calibrate
stocking levels across the supply chain. “I’m
amazed at what inventory optimization can do,”
says Snapp. “It can set service levels at detailed lev-
els, and let the optimizer [in the software] decide
where to put the stock. There’s no debate about the
theoretical value of inventory optimization.”
Many companies have taken notice of the value
of inventory optimization software. Nearly a quar-
ter of the respondents to a November 2012 DC VELOCITY survey said
they planned to buy inventory optimization software in the coming
year, making IO software second only to warehouse management sys-
tems on their “to buy” list. (See “Getting the big-picture view of
inventory,” December 2012.) Some of the top vendors of this soft-
ware, according to Snapp, are Logility, JDA, Manhattan Associates,
Servigistics, SmartOps, and ToolsGroup.
Although companies appear to be sold on the software’s value,
many seem to have trouble getting the most from the technology.
Snapp says there are a number of reasons for that.
For starters, there’s the comfort issue. In many of the cases where
inventory optimization has not met corporate expectations, Snapp
suspects that the software vendors did not adequately explain how the
application works. That makes it tough to get buy-in at the user com-
pany. Because they don’t comprehend the logic behind inventory
optimization, company executives don’t trust the
software’s recommendations to reduce stock lev-
els at specified warehouses and plants.
“Somebody will look at the output [from the
software] and say, ‘I’m not going to do this. We’re
used to maintaining a certain amount of inven-
tory,’” Snapp says. “If you don’t trust it, you will
keep the old systems.”
What users have to understand, Snapp says, is
that the software takes a broad, interconnected
view of inventory holdings in the supply chain.
