What is inventory optimization?

Inventory optimization is the process of strategically managing and controlling a company’s inventory levels to maximize efficiency and profitability while also minimizing costs and risks. The benefits of using inventory optimization software is that it allows you to balance the trade-off between having enough inventory to meet customer demand without holding excess stock that ties up capital and incurs inventory costs. Overstocking ties up capital and warehouse space, increases carrying costs, and can lead to products going out of date or becoming obsolete. On the other hand, understocking can result in stockouts, lost sales, dissatisfied customers, and potentially damage to the company's reputation. By leveraging techniques such as demand forecasting, inventory segmentation, safety stock optimization, and inventory replenishment strategies (like just-in-time inventory), businesses can ensure they have the right inventory levels on hand at the right time and in the right location and distribution centers. This helps to improve customer service levels, reduce carrying costs, minimize stockouts, and ultimately enhance overall operational efficiency and profitability.

What are the key aspects to look for in the best inventory optimization software?

Demand forecasting capabilities: The software should have robust demand forecasting features to accurately predict future demand based on historical data, seasonality, trends, and external factors. Inventory segmentation: Look for software that allows you to segment your inventory based on various criteria such as demand patterns, profitability, lead times, and SKU velocity. This enables you to apply different optimization strategies to different segments of your inventory. Safety stock Optimization: Ensure the software offers capabilities to calculate and optimize safety stock levels based on demand variability, lead times, and service level targets. Supply chain Integration: Choose software that integrates seamlessly with other supply chain management systems such as ERP, warehouse management, and procurement systems. This facilitates real-time data exchange and ensures consistency across the supply chain. Multi-echelon inventory optimization: If your business operates in a multi-echelon supply chain (e.g., multiple warehouses or distribution centers), look for software that can optimize inventory levels across all echelons while considering interdependencies and constraints. Scenario analysis: The software should allow you to conduct "what-if" scenarios and simulations to assess the impact of different inventory policies, demand scenarios, lead time variations, and other factors on inventory performance. User-friendly interface: The interface should be designed to be intuitive and easy for everyone in your business to learn. This will significantly increase user adoption. Look for software with a clean layout, customizable dashboards, and interactive visualizations. Reporting and analytics: Ensure the software provides comprehensive reporting and analytics capabilities to track key performance metrics, monitor inventory performance, and identify areas for improvement. Reporting should also be easy for everyone to perform themselves without having to rely on IT or finance. Scalability and flexibility: Choose a solution that can scale with your business growth and adapt to changing requirements. It should support customization and configuration to accommodate unique business processes and workflows. Customer support and updates: Consider the reputation and track record of the software vendor, including their customer service levels, frequency of updates and enhancements, and commitment to ongoing product development.

Inventory optimization drives efficiency

Empower your business to make informed decisions across various facets of inventory management, from inventory levels to supply chain optimization, with Phocas.

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Inventory optimization drives efficiency

Data integration Supply & demand Forecast demand Smart inventory Fast reporting

Meet supply and demand

Ensure optimal inventory levels with a clear view of what’s moving and what isn’t
Forecast demand and see which products need replenishment, liquidating or moved between locations
Track seasonality trends
Use purchase history and sales forecasts to predict stock levels needed months in advance
With accessible, up-to-date data, purchasing and inventory teams can control pricing, improve supply chain planning and maximize profitability.

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Frequently asked questions

Demand forecasting capabilities: The software should have robust demand forecasting features to accurately predict future demand based on historical data, seasonality, trends, and external factors.
Inventory segmentation: Look for software that allows you to segment your inventory based on various criteria such as demand patterns, profitability, lead times, and SKU velocity. This enables you to apply different optimization strategies to different segments of your inventory.
Safety stock Optimization: Ensure the software offers capabilities to calculate and optimize safety stock levels based on demand variability, lead times, and service level targets.
Supply chain Integration: Choose software that integrates seamlessly with other supply chain management systems such as ERP, warehouse management, and procurement systems. This facilitates real-time data exchange and ensures consistency across the supply chain.
Multi-echelon inventory optimization: If your business operates in a multi-echelon supply chain (e.g., multiple warehouses or distribution centers), look for software that can optimize inventory levels across all echelons while considering interdependencies and constraints.
Scenario analysis: The software should allow you to conduct "what-if" scenarios and simulations to assess the impact of different inventory policies, demand scenarios, lead time variations, and other factors on inventory performance.
User-friendly interface: The interface should be designed to be intuitive and easy for everyone in your business to learn. This will significantly increase user adoption. Look for software with a clean layout, customizable dashboards, and interactive visualizations.
Reporting and analytics: Ensure the software provides comprehensive reporting and analytics capabilities to track key performance metrics, monitor inventory performance, and identify areas for improvement. Reporting should also be easy for everyone to perform themselves without having to rely on IT or finance.
Scalability and flexibility: Choose a solution that can scale with your business growth and adapt to changing requirements. It should support customization and configuration to accommodate unique business processes and workflows.
Customer support and updates: Consider the reputation and track record of the software vendor, including their customer service levels, frequency of updates and enhancements, and commitment to ongoing product development.

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Inventory optimization drives efficiency

Inventory planning is all about the data

Meet supply and demand

Forecast demand by segment

Smart purchasing and holding

Clear inventory visibility

Fast, accurate reporting for everyone

Improve customer service levels

Simplify inventory management with one platform

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Data-driven inventory optimization eBook

Frequently asked questions

What is inventory optimization?

What are the key aspects to look for in the best inventory optimization software?

Understand the past, operate better today, and plan well for the future