Academic journal article The Journal of Business Forecasting

Maximize ERP Value with Inventory Optimization

Academic journal article The Journal of Business Forecasting

Maximize ERP Value with Inventory Optimization

Article excerpt

EXECUTIVE SUMMARY | Over the years, organizations have attempted various supply chain efficiency projects centered on getting higher customer service at lower costs. Even with the best efforts, these projects tend hold their achievements for one to two years, and then fall back to their previous positions. When companies try to improve processes based on systems with inherent optimization, even the best-laid plans fail. In most largeand mid-tier organizations, the transactional ERP/SCM systems are used to manage inventory and replenishment processes. However, the inner workings put up unintended operational roadblocks to successful distribution management. The very building blocks of transactional systems with normalized tables cannot effectively create optimized inventory in a multi-echelon environment. This article shows how to overcome the shortcomings in the ERP/SCM systems to optimize inventories over the long haul.

Manufacturers and retailers have improved business operations through the implementation of Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) systems. Both of these systems were developed to support the transactional activities within the organization from creating POs to delivering paychecks on time. On the whole, the ERP and SCM investments have been deemed successful by virtue of positive returns on investment they've created through wide-ranging operational and capital management efficiencies. In many cases, those systems have been deployed for purposes other than their original intent, with many manufacturers adapting them in creative ways for special business needs.

However, the successes of ERP and SCM systems have not come without questions and criticisms. Surveys and anecdotal evidence clearly show that C-level executives are still uneasy about the ROI on their ERP, Manufacturing Resource Planning (MRP), SCM, and other enterprise-level systems after investing in them for more than 30 years. They talk about squeezing more value from these huge systems. Typical ERP systems attempt to organize supply and demand signals with de facto sequential optimization-a process that leads to inflated demand forecasts and stock overages at numerous points in the supply and manufacturing chains. As the competition becomes more intense, manufacturing organizations need to improve their performance by minimizing unacceptable inventory positions.

In response, there is new emphasis on the need to work smarter by using analytical and optimization approaches to inventory and supply chain management. As customers' signals produce advance notice of demand, the systems should respond with necessary adjustments that can reduce and eliminate the bullwhip effect. But all too often, senior managers are frustrated: their ERP and SCM systems haven't been able to generate optimized results that they see as possible-and are much needed-to reduce or eliminate inefficiencies and unbalanced inventory. Finished goods manufacturers and retailers can use technology solutions for analytics and optimization to set measurable and relevant improvement goals for the enhancement of their ERP/SCM outcomes related to supply chain and inventory. For example, SAS® solutions have been successful in:

* Reducing capital invested in inventory by a minimum of 15 percent,

* Maintaining high service levels while eliminating inventory imbalances, and

* Reducing the effort while improving the quality of the inventory management and replenishment process.


Finished goods manufacturers and retailers know that efficient management of their supply chain can be a competitive differentiator, but they struggle with customers'ever-increasing demands on overtaxed transactional and operational systems. Industry executives increasingly acknowledge that moving from a push environment, where suppliers have relative control over their inventories, to today's pull environment, where customers dictate inventory, adds extra volatility to their ERP and SCM systems. …

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