• Shirish Khaire

Inventory Optimization For High Performance

Updated: Aug 3

The term inventory is not foreign to students and professionals who took accounts and finance in their curriculum. One must be aware of how it affects the balance sheet when treated differently as LIFO and FIFO. This article goes a step ahead to explain how optimized inventory can bring a difference to everything. It will also inform us why materials management optimization can not be neglected.


The average Fortune 500 manufacturer has anywhere from $40-$60 million in wasted working capital.

What is MRO inventory optimization?


Maintenance, repair, and operations (MRO) inventory optimization help asset-intensive organizations including leading Oil and Gas, Mining, transportation, Utilities and Process Manufacturing companies to attain results in months which might usually take years.


MRO inventory optimization is an integral part of supply chain optimization, whether you’re managing a fleet of autos, trains, buses or planes; or have been assigned a task of managing outsourced inventory for a prime customer.


Asset-intensive operations find it difficult to keep MRO inventory in check and improve or maintain service levels at the same time.



Why optimize MRO?


Industries face challenges including ineffective master data management which can lead to excess ordering and stocking, and lack of communication and collaboration within the organization resulting in material rejections and a poor supplier relationship.


MRO optimization is not the first thing that comes to mind while planning inventories and is often neglected. Maybe it should not be; as per IBM's statistics, a successful MRO inventory optimization can achieve the following targets:

  • Up to 50% reduction in unplanned downtime related to parts.

  • Up to 40% reduction in inventory costs.

  • Up to 35% savings in the maintenance budget.

  • Up to 25% increase in service levels.


The consumers’ patterns change more regularly due to the innovative ideas made by the modern world and this makes it possible to source cheaper and higher-quality products from all over the world. These results in complex global supply chains where links gain the probability of having changes, which could result in something negative. Usually, businesses that take regard for uncertainties for their own supply chains are steps ahead compared to competitors in the market, meeting customer demands more efficiently with their improvements.


Materials management optimization


A.I's integration with enterprise resource planning (ERP) materials management optimization use reordering parameters which are the main determinants of inventory outcomes that generate replenishment of orders.


Optimizing inventories are ought to be one of the more common, yet one of the most efficient ways of businesses being able to grasp on to their goals while also being part of competing between markets. Inventory optimization deals with acquiring the right inventory to meet target service levels while gaining minimum amounts of capital. Companies and other businesses need to take in mind the possible buoyancy for supply and demand, which is a very probable case when it comes to the optimization of inventories.


This strategy is considered the next level of inventory management for warehouse and supply chain managers and buyers. Optimizing your inventory deals with determining the exact orders from every single SKU (stock-keeping units) as well as the timing of taking orders to meet their needs. Businesses also have to take into account that changes are possible seasonally and economically. Being able to track down items through each warehouse avoids the excess or

inadequate calculation of capital in inventory.


Conclusion


Today’s asset-intensive companies, competitive advantage requires a certain mindset towards innovation and technology. Without technology solutions and best practices, companies are left to struggle with manual processes, standard ERP system functionality, and impromptu databases or spreadsheets. These manually intensive approaches are susceptible to error and impossible to sustain on a repetitive basis.

Inventory optimization is just good business. Achieving and maintaining inventory optimization is feasible and profitable, with the proper tools and therefore the right type of help.


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