Inventory optimisation

In the US, inventories constitute around 15% of GDP, or in excess of USD2.5 trillion , with stock levels predicted to increase further. Given the sheer amount of money invested in inventory, this can become very real business risk. At the same time, inventory also represents a tremendous opportunity – not just in terms of cost reduction but also as a way to introduce more sustainability into the supply chain.

Inventory reduces flexibility

Let’s start with the risk. Globalisation and rising customer expectations have led to businesses optimising their supply chains. When customers want to buy, businesses need to be ready to deliver. This has resulted in these enormous inventories where money is tied up in stock. 

The costs of having this much inventory in terms of taxes, obsolescence, depreciation and insurance in the US is estimated to be around USD 0.8 trillion  – or around 30% of the value of the goods. And that’s without factoring in waste. A report from Avery Dennison predicts that nearly 8% of excess stock worldwide will be wasted.

But the quantities of inventory involved is where the opportunity arises. Using planning, forecasting and control tools and procedures, businesses can better understand their inventory supply chains and make improvements. And when you consider how much money is invested in stock, even small improvements can translate into significant savings.

Bring in the inventory management specialists

Businesses of all types, from manufacturing to wholesale and retail, are becoming increasingly aware of the value of inventory management and many are looking to outsource this function. Through the tailored solutions offered by a 3PL, they are realising that they can minimise the indirect cost of handling their inventory, increase end customer satisfaction and improve their productivity. 

These were some of the benefits experienced by global electronics company Brother and international wine business Accolade when they started working to improve their inventory management with the help of Cardiff University PARC Research Institute and DSV.

Addressing the inventory challenge in practice

PARC Institute is a joint industry-academia initiative that has pioneered the inventory forecasting planning and optimisation tool D2ID – Demand-driven Inventory Dispositioning. Using modelling and data analytics methods, it can accurately predict demand and optimise stock levels according to service level considerations. This makes it possible to have the right inventory in the right place, at the right time, and most importantly, at the right levels. 

Brother and Accolade used the D2ID software developed by PARC Institute to analyse their historical sales data and predict the demand patterns for various products. By using factors such as seasonality, target service time and lead times, the software can optimise and select forecasting procedures and generate valuable data for inventory planning. With this tool and the knowledge and support of PARC Institute, both Brother and Accolade are now benefiting from operational improvements, increased visibility and greater inventory control.

The PARC project has been a huge success delivering real benefit both financially and in terms of transferred knowledge as we wanted… The inventory forecasting solution delivered by PARC is now used to forecast and centrally manage our €600 million per year sales of consumables in Europe. Automation and centralisation of decision making has released managerial time that is now being deployed to other areas of supply chain.

Dr. Mark Keyes, Senior Supply Chain Manager, Brother International

The PARC team provided a new insight to our business that identified real cash savings and operational improvements, particularly in the area of demand forecasting and inventory management. The savings identified were even greater than we had hoped for. The project has most certainly, directly and indirectly, positively impacted approximately 400 employees across the South of England.

Richard Lloyd, General Manager European Operations and Supply Chain, Accolade Wines

A revolution in spare parts

For example, manufacturing services and 3D printing are revolutionising spare parts. Instead of producing and storing large quantities of obsolescence-prone inventories, a company can create the spare parts when and where they are needed – on demand. This reduces inventory cost, cuts waste and frees up warehouse storage space.

Alongside the financial benefits, there are also environmental advantages to optimising spare part inventory. These range from using and wasting less, reducing reliance on expensive expedited orders, and cutting transport costs and CO2 emissions. Many logistics companies are also exploring other innovative solutions that can support reuse, remanufacturing and recycling in order to reduce inventory. 

To find out more about how you can optimise your inventory processes, increase your supply chain efficiency and save on costs, talk to our inventory management specialists.

The Authors

Athanasios Goltsos is Lecturer in Management Science and the PARC Assistant Professor of Manufacturing and Logistics at Cardiff Business School, Cardiff University.
Antonis Siakallis is Logistics Manufacturing Services Product Manager at DSV and the PARC Coordinator.
Aris Syntetos is Distinguished Research Professor of Decision Science and the DSV Chair of Manufacturing and Logistics at Cardiff Business School, Cardiff University.
Mike Wilson is Executive Vice President LATAM, Logistics Manufacturing Services, and  Inventory Management Solutions at DSV, and Honorary Visiting Professor at Cardiff Business School.