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According to a new report from IDC Manufacturing Insights, The Modern Supply Chain: Inventory Optimization Competitive Assessment (Document # MI218001, May 2009), inventory optimization (IO) is now among the top three priorities for many supply chain organizations as they seek to create increased efficiencies during the continued global recession. Over the next five years, IDC Manufacturing Insights expects to see an increased focus on supply chain modernization, network "rightsizing," and asset optimization. The company estimates healthy growth in global IO application spending in the 10% per annum range. This is ahead of the spending range for most supply chain management application categories, which is welcome news for solutions providers.
“Dramatic changes in business are having an inevitable impact on a company's supply chain network,” said Simon Ellis, IDC Manufacturing Insights practice director, Supply Chain. “Optimizing efficiencies in the supply chain – particularly inventory – has been propelled up the priority list for many companies. Increasing the productivity of assets has taken on more importance because of its direct relationship toward maximizing working capital and improving the bottom line."
IO applications are designed to plan inventory policy across multiple dependent echelons of a supply chain, in multiple planning periods. Essentially, they set inventory targets up and down the supply chain on a simultaneous basis. These applications can also provide the ability to create what-if quantification of the impact of certain business decisions on overall inventory management.
IO technology has increasingly been adopted and deployed by leading-edge companies. Decision processes such as overall sales, inventory, and operations planning (SI&OP), "profitable proximity" sourcing, and new product innovation can all be aided by this technology. Ellis states, "If inventory optimization is not on your short list of priority projects, you could be failing to capitalize on significant supply chain management benefits."
The cost of inventory optimization is variable but a typical implementation should be expected to cost between $300,000 and $500,000 for software, plus implementation costs in the same range. The result can be meaningful savings: It's not unusual for these improvements to provide ROI within a year and result in an inventory reduction in a global supply chain of as much as 25 percent. While the results vary from company to company, given the current economic climate, the potential benefits are compelling.
According to the report, this market has been characterized by smaller, best-of-breed vendors, providing a wide range of solutions offering differing benefits. However, notable applications are increasingly available from the larger software vendors. The IDC Manufacturing Insights report provides overviews of the market and an assessment of seven key application vendors that it believes will shape the direction and overall adoption factors within this market. These types of assessments are intended to help IT and business executives review a short list of suppliers so as to initiate a technology buying-decision process.
About IDC Manufacturing Insights
IDC Manufacturing Insights provides business and IT decision-makers with fact-based research and analysis to inform and support critical business decisions. The global independent research and advisory firm closely follows processes associated with the design, development and distribution of goods across markets including Discrete Manufacturing, Process Manufacturing, High Tech/Electronics Manufacturing, Consumer Packaged Goods and Retail. IDC Manufacturing Insights’ research and analysis is critical for end-users, as well as hardware and software vendors, service providers, and purveyors of IT outsourcing. IDC Manufacturing Insights is headquartered in Framingham, Mass.