How Multi-Echelon Approach to Inventory Optimization Works?

Manufacturers need to consider different approaches for managing their inventory to continue growing as well as keep their customers happy and they are inventory optimization software & other inventory approaches like multi-echelon inventory optimization. Let’s see them below:

When it comes to Inventory Optimization there is just one sticking point between the supplier and the customer. In multi-echelon optimization, it differs by one additional or many stocking points between the supplier and the customer.

Both inventory optimization and multi-echelon optimization plan to match the inventory levels for accommodating any forecasted demand in the most effective way. Companies all over the world are generally faced with several complexities in the supply chains. The higher portion of the inventory is made from products with intermittent, unpredictable, and long-tail demand.

It not just applies to the large e-commerce companies, but even to the small businesses that have to tackle slow-moving products with unpredictable demand styles. It makes demand forecasting & inventory management quite challenging. It is where MEIO will help.

Multi echelon Inventory Optimization vs Inventory Optimization

Basics of Inventory Optimization

Given are the two primary methods of inventory optimization:

Single-echelon optimization: This type of distribution center acts as the central repository for the businesses & customer-facing outlets. Inventory optimization optimizes an inventory at a single location, without getting affected by various other locations and echelons. Businesses using IO have complete control of the DCS & distribute the products right from there.

MEIO optimizes stock overall places in the supply chain network. The new inventory shipments will be stored first at the central and regional distribution centers. The central facilities work as internal suppliers to customer-facing outlets.

IO & MEIO both optimize the inventory levels that will match the current demand. They will streamline operations, keep proper control on the inventory levels as well as free up the working capital. They allow businesses to move their inventory easily as well as maintain the customer service levels. But, MEIO has some benefits on IO. 

Good inventory optimization identifies the optimal inventory levels right at their stages in the supply chain. The manufacturers may address any demand volatility & manage slow-moving or intermittent demand items with the most statistical algorithms, advanced analytics, as well as machine learning.

Also Read: What Is Search Engine Optimization (SEO) And How Does It Work?

Basics of Multi-echelon Inventory 

The multi-echelon optimization or MEIO extends these potential benefits that are attained from the traditional technique. MEIO improves stock keeping units at every location & period, optimizes the buffer locations of the SKUs throughout their network as well as resulting commitments among the echelons.

MEIO will improve the mix of various kinds of inventory, and how much or where all of them must get held by the different companies in the extended supply chain, to effectively serve their customer. As a supply chain professional, you have to know the major difference between single-echelon optimization & MEIO to decide the right solution for your business.

MEIO helps the organizations:

  • A model with various inventory methods.
  • Optimize inventory strategies over the whole network.
  • Improve service levels when cutting down the inventory.
  • See reductions of 10 to 30% and more.
  • Automate your inventory planning procedure.
  • Minimize the investment balance when achieving the proper service levels.

Most people prefer ordering online nowadays. And their expectations for the services, like instant delivery, are expanding. There’s stiff competition among the businesses to meet such expectations of their consumers. Only businesses that keep warehouses & stores at multiple locations or manage them well can succeed in this chain. They may do so just by implementing MEIO and using advanced solutions. 

Also Read: What Is Conversion Rate Optimization?

Final Words 

Inventory optimization is one major area of function that companies have grappled with, and trying hard to achieve the right strategy for managing the supply chain. Ineffective inventory management will be very problematic for the enterprises, and costly too.

Implementing a strong inventory management way like multi-echelon optimization can be game-changing for many organizations, helping them to successfully manage the proper flow of the goods & services throughout the supply chain — and leading to tremendous financial gains.

The inventory optimization can model demand & determine the right inventory for the individual echelons in this supply chain. For example, if the supply chain as raw material suppliers, warehouses, and factories most inventory optimization services manage stock at every stage separately—and optimizing supply at the warehouses different from the factories.

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