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Inventory optimization processes have recently become one of the determining axes in an updated supply chain.
With the increase in variables and volatility, you can no longer rely on traditional stock control; today, to be competitive, you have to work on the precision, agility and efficiency of every link in the supply chain.
Changes at a global level motivated and enhanced by the growth of electronic commerce bring new challenges to maintaining fair inventory, which is neither excessive nor insufficient and that can meet demand while taking care of cash flow.
Nowadays, technology, data and artificial intelligence make this task an increasingly strategic and automated process.
There are platforms such as Datup AI, for example, that already combine demand forecasting with optimization and execution in a single environment, to help decisions to be made in seconds and in an informed manner.
Below you can find a guide in which we will define what inventory optimization is, what are its benefits, 10 Most Effective Optimization Strategies and best practices for achieving a profitable and sustainable balance sheet.
La inventory optimization It is the process through which we seek to maintain the correct stock level in order to meet demand without having unnecessary costs. The objective of optimizing inventory is to achieve a balance between availability and cost-effectiveness.
Unlike traditional stock control, optimizing inventory involves a more analytical and predictive approach. Using tools that can analyze historical data, market trends, consumer behavior patterns and delivery times, it's easier to decide When, how much and what to buy or produce.
On a daily basis, this means anticipating demand, avoiding shortages, reducing surpluses and freeing up fixed capital.
What makes a system considered optimized is that it not only responds to the market, but it Predicts and adapts.
Often both terms are used synonymously, but in reality they represent different levels of operational maturity within a supply chain.
When we talk about inventory management we are talking about:
If, on the other hand, we talk about inventory optimization, a step further is being taken. In this instance:
A quick comparison:
Both instances are necessary because they fulfill different roles:
Management keeps inventory working, optimization makes it a competitive advantage.
Optimizing inventory is an integral logistical improvement; it has effects not only on intermediate processes but also on financial results.
Some of the benefits that stand out the most are:
Having an optimized inventory is achieved less stock but more efficient, more control, better service.
To achieve good inventory optimization, there are some strategies that can be applied. Some of the 10 most used and most effective strategies for seeking operational optimization in stock management are the following:
This strategy is based on understanding that not all products have the same value or the same impact within a product portfolio. This model seeks to segment inventory in such a way that products can be managed differently.
In this strategy, we start by making a ABC analysis to classify inventory according to its importance:
This classification is then complemented by the XYZ analysis, to add a dimension of demand stability:
Doing this double segmentation in these two directions makes it possible to allocate efforts, organize replenishment policies and achieve a safety stock smarter and safer.
In order to apply it, we work on an AX—CZ matrix, in which different combinations require different actions.
This strategy helps to prioritize and make more rational use of resources.
The model known as EOQ or Economic Order Quantity, aims to determine what is the optimal quantity to order to minimize total inventory costs.
This model is based on three variables:
On a daily basis, what is identified is that:
What this model does is to find the optimal midpoint to ensure operational efficiency, which is achieved:
Some platforms such as Datup have this calculation dynamically integrated, adjusting according to changes in demand or lead times.
3. Just-in-Time Inventory (JIT)
The model Just in Time o JIT aims to eliminate inventories that are not necessary, so it seeks to receive materials just when they are needed, rather than accumulating them.
This method allows:
This method requires large coordination and trust with suppliers, in addition to demanding tools that allow us to have full visibility on demand, for which we must be able to:
It's an ideal choice in industries where components are expensive or product lifecycles are short.
Count on safety stock is to have a backup available to face unforeseen events, such as delays in the logistics process, peaks in demand or errors in the forecast. Its relevance lies in the fact that having a safety stock avoids cost overruns in unexpected cases.
When the stock is poorly managed it can trigger several scenarios:
To avoid reaching these scenarios, the calculation to be performed must consider the following variables:
By considering these variables, a safety stock is achieved.
Currently, there are many tools that use Artificial Intelligence and allow this calculation to be done automatically, depending on the current behavior of the supply chain.
El Reorder point It is a model that seeks to determine when it is optimal to place a new order before having a stock break.
This model has a basic formula:
Reorder Point = (Average Daily Demand × Lead Time) + Safety Stock
To apply it, you have to follow a few simple steps:
The most important thing in this strategy is to recalculate the reorder point regularly to keep it updated in relation to changing consumption patterns.
There are some tools with advanced systems such as Datup that perform this calculation and its monitoring in real time, adjusting orders before there are shortages.
A strategy with multilevel optimization or MEIO it is ideal in supply chains with more than one location, such as warehouses, distribution centers or different points of sale.
This strategy makes it possible to balance stock throughout the network, from start to finish, going through all the intermediate points and considering the interdependence between each one without generating duplicates.
The benefits of this strategy are:
To apply it, you must:
This approach allows for quick and agile responses to disruptions, since it assigns products where they are really needed.
The model VMI or Vendor Managed Inventory has the peculiarity of delegating part of the responsibility for the inventory to the supplier.
This model can have different levels of depth, delegating more or less responsibility to the different actors in the supply chain.
The model works by allowing suppliers to access customer consumption data to make the decision to replace when and how much they consider necessary as agreed.
Some advantages of this method are:
The VMI model requires building relationships with trust and transparency, with the objective of increase the efficiency of the entire system. For this it is necessary:
The inventory optimization process is not only reserved for the storage instance, but must be considered throughout the entire distribution network.
An optimal distribution network must include, in addition to storage, the reduction of times and logistics costs until reaching the final consumer.
For that you can:
Building an optimal distribution network reduces delivery times and logistics costs, which directly impacts customer experience, capital mobility and responsiveness.
Performing an accurate forecasting process is key to any optimization strategy.
Currently, there are several factors that must be taken into account in order for the demand forecast to be increasingly complete, such as:
Solutions that are based on Artificial Intelligence are very useful when it comes to detecting patterns that are not obvious or unfathomable to human beings, which ultimately allows us to anticipate demand with weeks of advantage.
Applying technology to forecast demand results in:
Constant inventory monitoring promotes early detection of variations that may become a problem.
A strategy that monitors stock is not only about knowing the quantities stored, but also about understand how the stock behaves.
An intelligent tracking system helps to respond quickly when market conditions or demand change.
There are some aspects that are key to efficient monitoring:
Continuous monitoring speeds up informed decision-making, turning inventory into another tool for control over the supply chain.
The most effective options on the market combine forecasting, prescriptive analysis and automation.
Datup AI stands out among them because it integrates with ERP and WMS systems, can recalculate dynamic security levels and offers recommendations based on real-time data.
Controlling inventory involves, in addition to recording product entries and outputs, anticipating demand, detecting deviations, maintaining a balance between availability and profitability.
Some of the techniques that allow this level of control to be achieved are:
These techniques, when combined with advanced analytics, offer optimal strategic inventory control.
There are some practices that help consolidate efficient management:
Inventory optimization is having enough to respond to demand without immobilizing resources that could generate more value elsewhere in the business. That's why doing it right doesn't have to do with having more technology, but with knowing how to use use data to decide quickly and confidently.
More accurate forecasts and balanced inventories with Artificial Intelligence to align Sales and Operations teams.
