Supply Chain

Transforming supply chain with multi-echelon inventory optimisation

Statistics from 2022 show that 67.4% of supply chain managers still use Excel sheets as a management tool. About 43% of businesses don’t track their inventory. This causes disruptions in the supply chain resulting in up to 62% losses in finances. Businesses need to ensure that the right stock is at the right place and at the right time. This is easier said than done when they’re dealing with hundreds of SKUs. Many manufacturers and logistics companies still use legacy systems, outdated algorithms, and personal instincts to manage inventory. To handle this, businesses must adopt multi-echelon inventory optimisation (MEIO). MEIO helps set efficient inventory in real-time to meet the forecast demand.*

What is multi-echelon inventory optimisation?

An MEIO solution enhances inventory optimisation. It suggests the right inventory levels at each stage of the supply chain by optimising inventory across multiple echelons and locations. A typical multi-echelon supply chain inventory optimisation model is both cyclic and interconnected.

The MEIO system suggests the right decoupling points and adequate levels of material. It can optimise inventory across locations for optimal staging and different bill-of-material (BOM) levels. This centralised visibility from enterprise inventory optimisation helps in greater demand planning, reduces cost, and streamlines operations.

The benefits of managing a multi-echelon supply chain

The simplest of challenges in inventory optimisation is prediction. Businesses always run the risk of overstocking and overspending. A multi-echelon supply chain provides some respite in terms of the following aspects:[2]

• Increase the cost-efficiency:

  Without a strong multi-echelon inventory optimisation strategy, companies may maintain surplus stock at different levels in the supply chain. This approach sounds good on the surface but is inefficient and uneconomical. There is too much capital tied up in the stocks that won’t move faster, which may need insurance to protect this additional inventory. With a multi-echelon inventory management approach, you can better use the capital and maintain the fluidity throughout the supply chain.

• Improve customer service:

  Without a robust mechanism to predict the inventory, companies face deficits. Products could be out of stock when there is demand for them, resulting in poor customer experience. Multi-echelon inventory management can accurately forecast the demand for a better customer experience.

• Develop better management of supply and handling market volatility:

  The COVID-19 crisis has made it evident that supply chains are highly vulnerable to global events. MEIO can help businesses ride the wave by transforming them into agile organisations and responding to market needs immediately.

• Better management of lead time:

  Businesses that deal with hundreds of SKUs are aware that not all have the same lead times. Without a strategic approach to inventory management, businesses cannot cope with it. Multi-echelon supply chains equip businesses to expand or contract the inventory on demand and be prepared for unexpected changes in lead times.

Stock management in a multi-echelon supply chain

Stock forecasting can never be 100% accurate. For example, a product that doesn’t sell a single piece in a week may sell 10 pieces in the following week and only 1 in the week after. Translate this variation to a supply chain that handles thousands of products.[3] The forecasting becomes more accurate as we move up the chain of regional distribution centres (RDCs). For example, the variation at a regional RDC will be higher than at a central RDC. A multi-echelon inventory management system deals with the problem by accounting for the following data:[3]

• Actual sales of each product
• The remainder stockpile of goods
• Schedules of internal shipment from DCs to stores and from the supplier to the DCs
• Current or upcoming offers and promotions
• Pre-orders from buyers versus the reserves
• Shortage of products versus forecast consumption until the next delivery

How can Infosys BPM help?

Infosys BPM works with clients to streamline and digitise their supply chains, mitigate risks, and be cost-efficient. The solutions include:

• Supply chain diagnostics to determine the current health
• Supply chain shared services advisory to improve the KPIs
• Supply chain control tower for faster decision-making
• Demand and supply forecasting as a service
• Inventory optimisation

View the supply chain optimisation services from Infosys BPM.

*For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like living organisms, will be imperative for business excellence. A comprehensive yet modular suite of services is doing precisely that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.