Our series: Supply Chain Simulation / part 8
Inventory optimization and planning tools
With an inventory optimization tool (such as anyLogistix – ALX), you can perform single or multi-level supply chain inventory optimization. You can:
- Reduce warehousing costs, including expenses for storage and personnel;
- free up capital in the short term;
- increase inventory turnover;
- improve customer service or
- reduce the percentage of obsolete inventory.
Why simulation-based inventory optimization?
A simulation model of a supply chain shows the system behaviour over time and can be used when complexity prevents a mathematical-analytical investigation (e.g. network optimization). This means that supply chain simulation is suitable for:
Consideration of randomness
Simulation models can account for randomly varying parameters, including transportation and production lead times, demand per product, changes in order quantities, and more. Using stochastic values instead of averages in the case of these variables allows you to identify complex dependencies. You’ll gain deeper insight into the factors driving you costs and determine what strategy changes are needed for a lean and low-risk inventory plan.
Handling inventory optimization across multiple stages
Optimization that occurs only in individual locations or at single stage of the supply chain can have a detrimental effect on other areas of a supply chain. For example, inventory policies that are not aligned can create feedback and contribute to the bullwhip effect.
Only a simulation model can handle the complexity of optimizing inventories across multiple stages of a supply chain because it replicates in detail how supply chains work. Inventory policies at each stage can thus be developed and tested in harmony with those at other stages, optimizing the supply chain as a whole.
Modeling at the level of detail you need
The ability to create simulation models with a tool like anyLogistix (ALX) allows you to model supply chains as they are in reality: the models are extensible and can accommodate all stages of your network at the level of detail you need to achieve your planning goals. For example, high inventory costs for raw materials can be caused by processes in the production stage. With ALX, you can model your production site at the j0b, shift and plant level to see exactly where a bottleneck exists or what is increasing your inventory.
The same applies to disruptions in transportation lead times and procurement schedules. Finding inventory-causing factors can be particularly difficult for products with complex bills of materials and multiple links between production sites. Here, detailed simulation can help identify the cause of anomalies and provide a basis for inventory optimization.
With conventional analytical solutions for inventory optimization, you cannot achieve the described advantages of a simulation.
In summary, inventory management optimization is a prime example of the use of supply chain simulation.
Would you like to learn more?
Watch the video from our partner anyLogistix on the topic of inventory planning: