inventory optimization in a market-driven world - 27 apr 2015

Inventory Optimization in a Market-Driven World Insights on the Use of Multi-Tier Inventory Optimization

04/27/2015

By Lora Cecere

Founder and CEO Supply Chain Insights LLC

Contents

Research Methodology

Disclosure

Executive Overview

The Role of Inventory in Building a Market-Driven Strategy

What Does It Mean to Be Market-Driven?

What Is the Role of Inventory in a Market-Driven Value Network?

Misconceptions

Selecting a Multi-tier Inventory Management Technology

Conclusion

Appendix

Other Reports in This Series

Terms to Know

About Supply Chain Insights, LLC

About Lora Cecere

3

4

5

7

10

12

15

16

18

19

25

25

26

26

Research Methodology This report is an assessment of the current state of the inventory optimization software market. It is

an evaluative report analyzing the capabilities of software providers. In the report, to help the potential

software buyer select the right solution, we give recommendations for software deployment based on

the characteristics of the buyer.

The study is based upon market triangulation of several factors:

Analysis of Inventory Trends in Value Networks. In our work at Supply Chain Insights, we are actively

tying financial results—balance sheet and income statement results—to software selection, process design

and organizational culture. The first sections of this report are based on two years of work on the Supply

Chain Metrics That Matter report series. In this analysis, we took a critical look at how each industry was

managing their effective frontier of growth, profitability, inventory, cash-to-cash cycles, and complexity over

the last decade. In this analysis, we found that nine out of ten companies were stalled at the intersection of

inventory turns and operating margin. They were able to either improve inventory turns or cost, but not both

together. In most industries this is due to the rise of complexity.

Figure 1. Supply Chain Effective Frontier

The Effective Frontier Model Is the Underlying Theory Used in Our Research. The image shown in Figure 1

is designed to illustrate the principle that a supply chain is a complex system with increasing complexity.

Inventory is tightly woven in a metrics portfolio with non-linear relationships to other supply chain metrics. It

is deliberately not termed the “Efficient Frontier”— a term used in economic theory. Why? Quite simply it’s

because the term “efficiency” in supply chain processes is usually linked to the lowest cost; and the

concepts of the Effective Frontier are based on the balance of growth agendas with cost, cycle metrics

(including inventory), and complexity. As you will see in this report, complexity comes in many forms with a

direct impact on inventory requirements. Both buyers and providers of software are at different levels of

maturity. To understand the market, we asked each technology provider to share their insights based on a

premise document. This qualitative interview included a demonstration of the technology provider’s

software (details in the Appendix of this document).

Interviews with Reference Users. To understand user satisfaction with the software, we spoke to at least

two current users of each type of multi-tier inventory software, or software used to drive inventory

configuration to determine form and function definition. These references were supplied both by the

technology providers and through dialogues with clients we work with at Supply Chain Insights.

Observations from Use of the Software with Clients in Advisory Work. As we travel the world, helping

clients in advisory work and speaking to users of the software at conferences, we triangulate the market

gaining additional insights from consultants and business users.

Disclosure Your trust is important to us. In our business, we are open and transparent about our financial

relationships and our research operations. In this process, we never share the names of respondents

and or give attribution to the open comments collected in the research. This research was funded

100% by the Supply Chain Insights team.

This report is shared using the principles of Open Content research. It is intended for you to read and

share freely with your colleagues, and through social channels like LinkedIn, Facebook and Twitter.

When you use the report, all we ask for in return is attribution. We publish under the Creative

Commons Attribution-Noncommercial-Share guidelines. Our policy is outlined on the Citation page of

our Supply Chain Insights Website.

In the development of the research our philosophy is, “You give to us, and we give to you.” As a part

of this philosophy, we share data with all respondents. Participants of our research always receive the

final reports; and if interested, we will share our insights with the respondents of our quantitative

surveys and qualitative interviews in a one-hour phone call with their team

We are committed to delivering thought-leading content for the supply chain leader. It is our goal to

be the place where visionaries turn to gain an understanding of the future of supply chain

management.

http://creativecommons.org/licenses/by-nc-sa/3.0/us/

http://www.supplychaininsights.com/

Executive Overview Growth is slowing and the complexity in today’s supply chain is unprecedented. As a result, within a

company, inventory management is often a hot issue. Shrinking inventory spins off a one-time, and

highly desirable, cash windfall. In most industries there is a connection between market capitalization

and inventory management. This drives pressure to reduce inventory and question existing practices.

However, while companies are quick to ask questions, they often make the wrong judgements about

inventory strategies. The goal of this report is to improve this dialogue.

Most companies have invested in many inventory optimization solutions over the last decade. Within

the company, there is mounting frustration about the failure of these projects to actualize and

maintain targets. What most companies fail to realize is that the technology strategy needs to be

worked in concert with supply chain strategy. Often we find while companies improve inventory levels

through the deployment of inventory technologies, operational decisions to widen the item master or

lengthen the supply chain will undermine the project targets.

There are many drivers of inventory, and the management of inventory levels requires discipline and

a cross-functional focus. It is a story of people, process, and technology. Let’s start with people.

Today, fewer than 5% of companies have an end-to-end focus (as defined from the customer’s

customer to the supplier’s supplier), and most companies lack alignment and balance. The largest

gaps between are between operational and commercial groups. (Cecere L. , Three Techniques to

Improve Organizational Alignment, 2013). As companies close the organizational gap, progress is

made on inventory. Likewise, when it comes to balance, 68% of organizations surveyed lack balance

in Sales and Operations Planning between the commercial groups (the “S”) and the operational

groups (the “OP), When balance is achieved, the organization rates itself as more agile, and aligned,

and there is an 11% improvement in inventory turns (Cecere L. , Research in Review, 2014).

Supply chain processes are now over 30-years old. While there is a generalized belief that maturity of

supply chain processes has improved inventory turns, as can be seen in Figure 2, the improvements

in cash-to-cash have primarily been driven by lengthening payables. In industries like beverage,

pharmaceuticals, consumer packaged goods and medical device, the industry averages have gone

backwards (inventory turns have decreased not increased). Only the food and apparel industries

have posted double-digit improvements in inventory turns. Why? Food and apparel are largely

regional supply chains which are maturing. They lag consumer packaged goods in supply chain

maturity. While consumer packaged goods companies are more mature, they are more global. The

rise of the global multinational has greatly impacted inventory requirements.

Figure 2. Progress by Industry for the Period of 2006-2013

In an ideal world, the supply chain drives growth, improves costs and increases operating margins,

reduces inventories and accelerates inventory turns, reduces cash-to-cash to improve working

capital, and streamlines productivity. It is both a balancing act and a tall order. The supply chain is a

complex system with increasing complexity. There is a non-linear relationship between metrics. As a

result, companies have to be careful to not manage inventory in isolation. Instead, inventory

improvements happen when there is a disciplined approach to manage the complex portfolio of

metrics.

Each industry has a different potential with unique rhythms and cycles; and as a result, the inventory

targets from one industry cannot be ascribed to another. Instead, the targets need to be set based on

a careful study of supply chain potential. The greatest success happens when the metrics are

managed as a portfolio (focus on the Effective Frontier of growth cost, cycles, and asset utilization)

with a focus on small and incremental improvements.

This cannot happen without the deployment of technologies. The available technologies come in

many forms and variations. As a result, the market is very confusing. This landscape of technology

providers is too complex to be represented in a simple four-box model. This approach does the

market an injustice.

In this report, we start by defining a market-driven value network. We then define the role of inventory

within a market-driven value network. The concept of a market-driven value network is the maturation

of demand-driven concepts and is defined as a network that focuses on improving supply chain

excellence across multiple tiers of the supply chain using outside-in processes.

We then define the tips and techniques to implement an inventory strategy in a market-driven world,

and follow with an analysis of the available technologies for multi-tier inventory management. We end

the report with recommendations for the supply chain team attempting to drive a market-driven

strategy.

Figure 3. Evolution of Demand-Driven Concepts

The Role of Inventory in Building a Market-Driven Strategy The supply chain is volatile in both demand and supply. As shown in Figure 4, demand volatility and

supplier viability are major risk factors. Over the time period, they have been consistent. Regulatory

compliance and operations complexity are rising as risk factors.

Many companies are confused between the role of lead times, inventory, and operations complexity.

Ironically, a high-capacity plant can have a high throughput, but a long cycle time. The longer the

response time the greater the need for inventory buffers. Capacity, lead-times, cycles and

throughputs are intrinsically linked in the determination of inventory strategies. As supply chains

become more global, the determination of inventory strategies becomes more complex, requiring

technologies and the design of the supply chain to ensure that inventory is the appropriate buffer.

Likewise, in distribution strategies, there is tension between freight costs, distribution cycles and

costs. Companies with an end-to-end focus can make these trade-offs which usually require an

increase in transportation costs and a decrease in cycles; but, it is a continual balancing act requiring

cross-functional orchestration. The need for this cross-functional coordination and orchestration has

never been greater. It is impossible to drive the same level of improvement and balance inventories

through a functional approach.

Figure 4. Supply Chain Risk Factors

To dampen demand-supply volatility, there are two buffers: inventory and manufacturing capacity.

With the outsourcing of manufacturing, inventory has grown in importance and is now the primary

buffer for supply chain volatility in the extending economy.

While traditional supply chain technologies and processes focus on inventory levels with a laser-focus

on minimizing safety stock levels, as companies become more market-driven, there is a need to right

size buffers and focus on both form and function of inventory. Additionally there needs to be a holistic

focus on value networks and the determination of inventories at multiple tiers, or nodes within the

supply chain. Today, we find less than 3% of companies have implemented multi-tier inventory

optimization software. Old technologies—Enterprise Resource Planning (ERP) and Advanced

Planning and Scheduling software (APS)—optimize supply chains node-by-node. The movement to a

multi-tier strategy requires the use of deeper analytics to design the form and function of inventory

while optimizing inventory levels across the network. For many supply chain leaders, the design of

inventory strategies within value networks is a set of new concepts. Companies want to grow. To meet this goal, the management of new product launch is a fundamental

plank in managing inventory levels. New product launch error averages 80%; and as a result, the

introduction of new product launch is fraught with issues of out-of-stocks and inventory write-offs.

Market-driven concepts are essential to improving supply chain processes to drive a growth strategy.

Growth also adds complexity. With the resultant increase in item complexity—proliferation of items on

the item master, shifts in demand shaping programs for price and promotion for new product launch,

and the increased complexity of managing a global matrixed organization—the design of inventory as

a buffer becomes more critical. It has grown in importance.

When supply chains were simpler, it was sufficient to calculate inventory levels—the right amount of

safety stock to hold at each node in the supply chain. This is no longer the case. In market-driven

value networks, it is important to shift the focus to be more inclusive to focus not only on inventory

levels, but also on the form and function of inventory.

The concepts fundamental to defining form and function of inventory are explained in Table 1.

Table 1. Definition of Form and Function of Inventory

What Does It Mean to Be Market-Driven? A market-driven value network senses and responds market-to-market (from channel to supplier).

When successful, a market-driven process is both horizontal and bidirectional to enable the

organization to continually test and learn and orchestrate processes cross-functionally. In the five-

stage maturity model shown in Figure 5, it is a continuation of the demand-driven value network

journey.

The focus of a market-driven value network is holistic. The design is to maximize opportunity and

mitigate risk in the end-to-end supply chain. When successful, these processes become outside-in,

focused on sensing and responding based on channel demand versus the more conventional

processes that are inside-out, driving deterministic optimization based on order patterns.

As the supply chain becomes more market-driven, the role of inventory shifts. It becomes more

important. Companies executing a market-driven strategy need to design inventory buffers along with

push/pull decoupling points, analyze inventory levels and set-points at multiple nodes simultaneously

in the value network, and design the supply chain with a keen focus on the form and function of

inventory. The old techniques of deterministic optimization node-by-node are not sufficient.

Figure 5. Five Stage Maturity Model to Becoming Market Driven

Instead, it requires holistic thinking. Some of the greatest misconceptions are listed in Figure 6.

Figure 6. Common Misconceptions of Market-Driven Strategies

Increase In Maturity

What Is the Role of Inventory in a Market-Driven Value Network? As companies increase the number of items on the item master, and deploy demand-shaping

strategies, demand latency increases. Demand latency is the time for the purchase of an item by an

end-consumer to be translated across multiple tiers of the supply chain into an order to drive

replenishment. The longer the tail of the supply chain, the greater the demand latency. For example:

in consumer packaged goods products, an over-the-counter drug product can have a demand latency

of 45-60 days, while a fast moving consumer good like carbonated beverages has a demand latency

of 1-2 days. The greater the demand latency, and the longer the tail within the supply chain, the more

important the design of inventory strategies.

A summary of organizational tensions is shown in Figure 7.

Figure 7. Organizational Tensions to Reduce Inventory Levels

To understand the tail of the supply chain, reference Figure 8. To understand this within your own

organization, and calculate the tail of different divisions, plot items based on volume and order

frequency.

Figure 8. The Long Tail of the Supply Chain

In plotting the unique rhythms and cycles of the supply chain, the items on the tail which have low

volume and lumpier order patterns require the use of the new inventory techniques—the design of

inventory buffers, definition of push/pull decoupling points with a focus on postponement, a focus on

form and function of inventory, and the use of multi-tier inventory management—as outlined in this

report becomes more important.

The logic is in the math. Products on the long-tail of the supply chain have a higher coefficient of

variance (COV). With a higher COV and a lumpier order pattern, these items require significantly

higher levels of safety stock. Late-stage postponement and risk pooling are frequently used

techniques to reduce inventory risk and safety stock levels.

The longer the supply chain is, the greater the distortion of independent demand. This is termed the

“Bullwhip Effect.” In building the global multinational supply chain, the Bullwhip Effect increased in

most companies. This phenomena is defined in Figure 9.

Figure 9. The Bullwhip Effect

Over the last decade, a lot of change has impacted the supply chain all at once. For most supply

chains it is not one factor that has increased inventory levels; instead, it is many. In Figure 10, to help

the team understand the total impact, we list a number of shifts that have impacted inventory levels.

Figure 10. Business Factors Impacting Inventory Levels

Misconceptions When it comes to the management of inventory, there are also many misconceptions. These include:

Inventory Management Is the Same as Replenishment. Inventory management and replenishment

are separate, but interrelated processes. While inventory management includes the design of inventory

strategies to set inventory targets including the execution of supply chain processes to design and

manage the form and function of inventory. In contrast, replenishment is a about flow. It is usually push-

based logic, based on a series of rules, based on dependent demand. Traditional replenishment logic

adds to amplification and distortion of the demand signal. The greater the demand error, and the

greater the supplier volatility, the greater the need for multi-tier inventory management.

The Market Leaders in Inventory Management Technology Have the Best Solution. While many

companies believe that the company which sells the most technology to manage inventory, this is not

the case in multi-tier inventory planning. The companies with the greatest market share—Oracle and

SAP—have the weakest references. While both Oracle and SAP will hotly debate this fact, we find a

strong gap between the vendors’ perception of the market and those of their clients.

Inventory Is a Cost to Be Managed. A frequent mistake made in the management of inventory in the

extended supply chain is a blanket reduction—a corporate mandate to reduce inventory— without

rationalizing the requirements for inventory in the value chain. Inventory should never be managed to a

financial target. Instead, it needs to be based on the requirements of customer policy and the supply

chain strategy. For many, this understanding is one of the first to close.

All of the Solutions Are the Same in Functionality. As can be seen in the Appendix, there are major

differences in the technologies to manage inventories in the extended supply chain. As a result,

companies should buy inventory management technologies based on process requirements, IT

standardization and cultural fit. While many think that solutions with a common name—technologies

purchased from a common vendor—are integrated, often the situation in the market is vastly different.

Most of the inventory technologies have been sold and resold multiple times in the market, with many

existing in an unintegrated state within a parent company.

Larger Vendors May Not Have the Functionality Now, But It Will Come. The market for multi-tier

inventory management was overhyped and largely underdelivered in the period of 2005-2007. Due to

market size, and the highly competitive and fragmented market, the levels of R&D investment have

slowed. As a result, buyers should buy based on today’s functionality.

The Management of Inventory Does Not Need Technology. To get good at the management of

inventory, companies need technologies. The supply chain is a complex system that cannot be

adequately managed through calculations on a spreadsheet. Blow up your spreadsheet ghettos within

your organization and challenge your company to think more holistically about the role of inventory in

the market-driven value network.

I Can Use New Technologies without Changing My Planning Organization. The use of new

technologies requires time for planners to use them, and when implemented correctly leads to a new

set of business processes. Do not make the mistake of buying and installing the technologies, but not

getting the benefit because the planners did not have adequate time to plan, or you have not taken the

time to rethink the processes to use the new technologies.

Implement with Knowledgeable Resources. At first when you read this recommendation you might

say, “DUH!?” Let’s face facts. There are too few people in the world who are really knowledgeable

about these software tools. While many consultants will talk about inventory, we find few to be

knowledgeable in the technologies. Instead, we find the technology’s provider to be the most

knowledgeable on the use of the technologies; and as a result, there are few cases where these

technologies should be deployed by a large system integrator. There are a few boutique consultancies

around the world that have built strong teams around inventory optimization. These are usually small,

and focused consultancies with a strong inventory heritage. Some that we recommend are

CHAINalytics, Optilon, Rasner Logistic Software, Solventure, Spinnaker Software, and Savi

SmartChain.

Selecting a Multi-tier Inventory Management Technology To select a multi-tier inventory optimization vendor follow these five steps:

Step1: Define Business Strategies. Charter a team to define business requirements and holistically

assess the needs of your supply chain. Understand the drivers of inventory, and educate groups

cross-functionally on market-driven concepts. Evaluate the effectiveness of your own policies cross-

functionally.

Step 2. Research the Market. Before starting the search for technologies, understand the options

(see Appendix). The base-level functionality of software vendors is outlined in Table 2.

Step 3: Conduct a Conference Room Pilot. Short-list the technologies for a conference room pilot.

Test the technologies using data from a period (e.g., use prior year data to calculate inventory safety

and cycle stocks for a given period and compare to actuals for that year.)

Table 2. High-Level Overview of Inventory Management Solutions for Market-Driven Value Networks

Step 4. Maximize Existing Signals. Using better signals, deploy better math. For example, if your

company is deploying a demand-sensing technology, implement a complementary solution to

manage inventory. Or if the company is deploying a control tower strategy, try to bolt on a

complementary technology to maximize the more advanced sensing capabilities.

Step 5. Maximize the Use of the Technology. We see many companies buy, but not use inventory

technologies. The best results happen when multi-tier inventory technologies are run frequently—

daily or at least weekly.

Step 6. Use Multi-Tier Inventory Optimization in Conjunction with New Technologies to

Determine the Form and Function of Inventory. Define the role of Inventory Management Planner

and maximize the value of technology. Determine the best inventory strategy for the form and

function of inventory in the strategic and tactical planning horizons (forward-looking and connected to

the S&OP process) and utilize multi-tier inventory management solutions in the short-term planning

horizons in conjunction with traditional distribution planning and deployment solutions.

Conclusion The rate of change in the last decade in supply chain management practices is driving the need for

deeper and more sophisticated inventory management strategies. Today’s inventory buffers cannot

be managed effectively without the use of more advanced technologies, but they also cannot be

adequately addressed without reorganizing the planning function to enable planners to design and

execute inventory strategies to actualize market-driven value networks. As shown by the balance

sheet results in this report, it matters more than ever.

Appendix

To participate in this study of multi-tier inventory management, the technology providers had to have

either a multi-tier inventory optimization solution, or solutions to design the form and function of

inventory, or were currently driving advancements in decisions support to manage inventory through

concurrent optimization. Traditional linear deterministic optimization embedded within Distribution

Requirements Planning (DRP) was not sufficient to qualify.

Pricing Key

$-$$ Under $100,000 to purchase and deploy

$$-$$$ $100,000-250,000 to purchase and deploy

$$$-$$$$ $250,000-500,000 to purchase and deploy

Arkieva Website: http://www.arkieva.com

Geographic Focus: North America and Europe

Partnerships: Solventure

Industry Focus: Chemicals, Polymers, Plastics, Consumer Products, and Food & Beverage

Average Price: $$—$$$

Number of Deployments of Multi-tier Inventory Optimization: Less than 10

Background: Privately funded by DuPont supply chain experts in 1993, Arkieva was initially named Supply Chain Consultants and marketed a product termed Zemeter. In 2007, the company rebranded with the Arkieva name.

Strengths: Arkieva quietly introduced multi-tier inventory optimization in 2009. The strength of the product is the translation of supply chain segmentation into cycle stock management in production scheduling, and the use of specialized multi-tier inventory optimization algorithms for multi-tier inventory optimization. The product extends the multi-echelon idea beyond the distribution network into the bill of materials network. The client has strong references and reasonable pricing.

Considerations: Arkieva is primarily focused in North American and European markets, and is now try to expand to Asia and India. It is a stronger fit for manufacturing-centric than distribution-centric corporate environments. Arkieva partners with Solventure for European deployments. The supply functionality is stronger than the demand translation capabilities.

http://www.arkieva.com/

Barloworld Supply Chain Software Website: http://www.barloworldscs.com/

Geographic Focus: North and South America, Europe, Africa and United Arab Emirates

Partnerships: Tech Mahindra

Industry Focus: Retail, Spare Parts, 3PLs, Aerospace, Building & Trade Merchants, Wholesale & Distributors, Oil & Chemical

Average Price: $$—$$$

Number of Deployments of Multi-tier Inventory Optimization: Less than 5

Background: With a strong background in Network design (CAST) and Inventory Optimization (OPTIMIZA), Barloworld Supply Chain Software is combining both the CAST and OPTIMIZA functionality to create an integrated supply chain platform. It is often selected based on price. The multi-tier inventory functionality is new and should be considered only by the early adopter whilst the single-tier functionality has many deployments with satisfied references that report a high ratio of value to price.

Strengths: The Barloworld Supply Chain Software solution provides a wide range of functionality, enabling customers to design their networks, manage inventory flows, set inventory buffers and execute their orders within a single solution. With a strong European and African presence, their inventory optimization solution should be short-listed by small and medium European companies. The company offers either cloud or hosting capabilities along with licensed software deployments.

Considerations: The inventory optimization functionality is less mature for multi-tier deployments and should be deployed with caution as the company fine-tunes the platform. The solution deployments are less mature in the Americas than in Europe.

JDA

Website: www.jda.com

Geographic Focus: North America, EMEA, Latin America, APAC

Partnerships: Capgemini, MEBC, Spinnaker

Industry Focus: Retail, High-Tech, Consumer Products, Semiconductor, Industrial

Average Price: $$$—$$$$

Number of Multi-tier Inventory Optimization Deployments: 30-50

Background. Within the JDA suite—due the acquisition of E3, Manugistics, i2 Technologies and RedPrairie—there are many inventory management solutions. The strongest solution stems from development on the i2 Technology multi-tier inventory optimization solution. Most of the solutions are licensed deployments with a few hosted by the vendor. JDA has some of the deepest work on retail optimization.

Strengths: JDA’s renewed investment in the multi-tier inventory solution is impressive with strong references in the high-tech and electronics industry. The current product road map is focused on extreme scalability and usability.

Considerations: The number of JDA solutions and the lack of message clarity makes it difficult for the customer to buy. The JDA Flowcasting tool is widely messaged, but is a replenishment tool, and is a fit for only a small number of clients.

http://www.barloworldscs.com/

http://www.jda.com/

Kinaxis Website: www.kinaxis.com


Partnerships: Accenture and Bristlecone

Industry Focus: Pharmaceutical, High Tech, Industrial, Contract Manufacturing, Automotive, Aerospace


Number of Multi-tier Inventory Optimization Deployments: Less than 5

Background: An early leader in cloud-based deployments, Kinaxis software is written for and deployed in the cloud. The company is the strongest in material-centric supply chains—discrete, contract manufacturing and high-tech. In the past two years, there is greater adoption in consumer packaged goods and pharmaceutical/life science accounts.

Strengths: The Kinaxis solution is a very scalable, cloud-based, in-memory optimization technology designed for short-term planning and visibility. With strong references in base products for supply chain visibility and material substitution, the company introduced a multi-tier inventory management solution in 2013.

Considerations: The Kinaxis solution is the best fit for material-centric environments without manufacturing constraints. The multi-tier inventory optimization solution, while new, is promising. The solution has more North American deployments than in other parts of the world, and historically, Kinaxis has had difficulty building and sustaining lasting partnerships.

LLamasoft

Website: www.LLamasoft.com

Geographic Focus: North America, South America, Europe

Partnerships: CHAINalytics

Industry Focus: Retail, Consumer Products, Automotive, Food & Beverage and High-Tech & Electronics



Background: Traditionally a network design technology, LLamasoft introduced an inventory solution to focus more holistically on inventory management in 2013. The company also extended the solution through the purchase of the LogicTools assets from IBM in the spring of 2015. The integration of the two companies is currently in progress, but when completed, gives users a variety of strong inventory optimization technologies.

Strengths: With a strong focus on customer satisfaction, LLamasoft has a strong reference base of loyal network design users. Over the last four years the company has become dominant in the network design technology space, and is slowly easing into a leadership position in the design of inventory buffers.

Considerations: Due to the nature of the company’s evolution, the technologies are designed to be used as standalone analysis tools. They lack enterprise application-class rigor (APIs for integration, role-based security, and parallel processing.) The purchase of the LogicTools application may improve LLamasoft’s definition of enterprise-class software.

http://www.kinaxis.com/

http://www.llamasoft.com/

Logility Website: www.logility.com


Partnerships: Deloitte, PWC, Clarkston Consulting

Industry Focus: Retail, Consumer Packaged Goods, Food and Beverage, Discrete Manufacturing, and Chemical

Average Price: $$$$—$$$$$


Background: Logility is a wholly-owned subsidiary of American Software. Over the last decade the company posted a record number of profitable quarters. With a strong focus on customer satisfaction, the company has a large number of loyal customers for the inventory optimization solution. The multi-tier inventory optimization solution, Optiant, was purchased in 2010.

Strengths: The company has slowly worked on the integration of the Optiant solution into the Logility platform with no disruptions of product development expectations. The company has maintained and grown the customer user base for the Voyager Inventory Optimization solution. The inventory configuration solution—focused on the design of postponement strategies—is stronger than the multi-tier inventory optimization solution focused on determining inventory levels. However, the two used together drive demonstrable results.

Considerations: Logility is stronger in North America than in Europe and lacks in-country global support for a large global multinational.

OM Partners Website: www.ompartners.com

Geographic Focus: Europe, North America, Latin America and Asia

Partnerships: Accenture, Logexsoft, SCM Engineering

Industry Focus: Chemical, Industrial Plastics, Food and Beverage, and Consumer Products



Background: OM Partners offers deep solutions for supply-centric manufacturing companies with constrained environments. The solution is best used by a person with above-average understanding of inventory optimization concepts. To streamline deployments, the company recently introduced industry-specific templates. In addition, the company has introduced some control tower functionality with less than ten companies; however, these references have not been validated at the time of publishing this report.

Strengths: The strength of the solution is the depth of optimization for supply-centric manufacturers. The system is very flexible and configurable. This is a strength that can be a negative if the user is not mature in their understanding of market-driven inventory optimization concepts.

Considerations: The OM Partners organization is stronger in Europe than in the United States, and many references express concern on the amount of configuration required to make the solution work at an optimal level. While the company has recently introduced industry-specific templates, the opportunity is usability.

http://www.logility.com/

Oracle Website: www.oracle.com

Geographic Focus: All

Partnerships: All major system integrators

Industry Focus: All



Background. The Oracle solution for multi-tier inventory optimization was introduced in 2004, and was the first solution to offer financial constraining of inventory to budget (a practice that is not recommended). The solution has the weakest user base of the competitors with many abandoned deployments.

Strengths: Global reach and strong marketing give the Oracle SCM suite a great market presence. The solution is stronger for discrete manufacturers than process-based industries.

Considerations: Of all the solutions, the Oracle solution has the weakest, and least mature, references. The investment in the product development road map over the last ten years has not been a major priority for Oracle.

SAP

Website: www.sap.com

Geographic Focus: Global

Partnerships: There are few major consulting companies where there is not an SAP partnership

Industry Focus: All


Number of Multi-tier Inventory Optimization Deployments: More than 50

Background: The SmartOps technology, now owned by SAP, was an innovative solution in 2002-2005. The use of stochastic optimization in the SmartOps tool in a multi-tier environment paved the way for market category. Product development slowed in the period of 2010-2013 and many deployments sold through the SAP partnership languished as shelfware.

Strengths: The SmartOps solution was purchased by SAP in 2013, and is at the center of the design of the new SAP Supply Chain Solution on HANA. As a result, the solution is getting great attention by SAP product development. Improving the solution is core to the product development road map for demand sensing, supply chain visibility/control tower and S&OP on HANA. SAP is the most extensive solution in the management of partnerships and the deployment by system integrators.

Considerations: SAP has the second weakest references next to Oracle. While many of the legacy SmartOps solutions were purchased, they were not deployed. Currently, the SAP solution is losing in many conference room pilots to newer and deeper solutions.

http://www.ompartners.be/

http://www.sap.com/

Terra Technology Website: www.terratechnology.com

Geographic Focus: North America, Europe

Partnerships: HP, Wipro

Industry Focus: Chemical, Consumer Packaged Goods, Food and Beverage

Average Price: $$$ — $$$$$


Strengths: Terra Technology is a pioneer in the design and deployment of demand-sensing technology. Usually, the deployment of the Terra solution for multi-tier inventory management is an extension of the demand-sensing projects. Often these are third- and fourth-generation inventory deployments with Terra replacing solutions by other vendors focused only on inventory levels. On average, the combination of Demand Sensing with Terra Multi-tier Inventory Optimization reduces total inventory levels by 11%.

Considerations: There are few deployments of Terra not deployed in conjunction with their DS and MDS demand sensing products; and it is not a solution for companies uncomfortable with the concepts of demand sensing. Terra has the most experience in make-to-stock industries and is primarily focused on companies headquartered in North America and Europe, although several of their implementations include Asia and Africa.

ToolsGroup Website: www.toolsgroup.com

Geographic Focus: North America, Europe, Israel, LATAM

Partnerships: Accenture, CHAINalytics, MHT, Optilion, PrimeGLobal, Rasner, Simco, St. Onge

Industry Focus: Food & Beverage, Apparel, Consumer Goods, Distribution, Healthcare, Retail

Number of Multi-tier Inventory Management Deployments: over 100

Average Price: $$$ — $$$$

Background: ToolsGroup’s origins are from Italy and the company has successfully survived the rise and fall of the inventory multi-tier inventory optimization market. Unlike other technology providers in this space, the company has built a successful global network of consultants with deep inventory knowledge.

Strengths: ToolsGroup multi-tier inventory optimization is ideal for a distribution-intensive industry struggling with increased demand volatility stemming from the growth of the long-tail of the supply chain. With strong deployments in Europe, the ToolsGroup solution is ideal for mid-market customers (greater than 500M$). The company is private with conservative management.

Considerations: The Company has a greater market presence in Europe than North America, and is a better fit for distribution-intensive than manufacturing-intensive companies. The focus is on inventory levels with a strong focus on the management of safety stock inventories and is not a good fit for those looking for form and function/inventory configuration capabilities.

http://www.terratechnology.com/

http://www.toolsgroup.com/

Other Reports in This Series This is the first report on multi-tier inventory optimization; however readers may gain added value by

accessing complimentary reports on Sales and Operations Planning and use of supply chain

applications on our Supply Chain Insights website:

Voice of the Supply Chain Leader

Sales and Operations Planning: Current State of the Union

Maximizing the ROI in Supply Chain Planning

Research in Review 2014

Terms to Know Getting clear on terms is often the first step to driving a supply chain transformation in inventory

management. To help teams, here we provide the definitions of the terms used in this report:

Concurrent Optimization. The use of technologies to solve optimization problems across source,

make and deliver in-memory together to rationalize cross-functional trade-offs.

Demand Latency. The time it takes for order take-away at the point of consumption to translate into an

order for a manufacturer. The slower the velocity at the point of consumption, the longer the demand

latency.

Inventory Configuration. A focus on form and function of inventory, along with techniques like

postponement and risk pooling, to improve inventory buffers.

Multi-tier Inventory Optimization. The use of inventory optimization to determine optimization levels

at multiple nodes simultaneously.

Postponement. An inventory strategy to delay steps of the conversion process until the demand for the

final product is known.

“This report reflects aggregate feedback from clients using the software.”


http://supplychaininsights.com/voice-of-the-supply-chain-leader-2014/

http://supplychaininsights.com/sales-and-operations-planning-current-state-of-the-union/

http://supplychaininsights.com/maximizing_the_roi_in_supply_chain_planning/

http://supplychaininsights.com/research-in-review-2014/

About Supply Chain Insights, LLC Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is now in its fourth year of

writing research focused on delivering independent, actionable, and objective advice for supply

chain leaders. If you need to know which practices and technologies make the biggest difference to

corporate performance, turn to us. We are a company dedicated to this research. Our goal is to help

you understand supply chain trends, evolving technologies and which metrics matter.

About Lora Cecere Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and

the author of popular enterprise software blog Supply Chain Shaman currently read

by 5,000 supply chain professionals. She also writes as a Linkedin Influencer and

is a a contributor for Forbes. She has written three books. The first book, Bricks

Matter, (co-authored with Charlie Chase) published in 2012. The second book,

Shaman’s Journal published in September 2014, and the third book, Supply Chain

Metrics That Matter, published in December 2014.

With over twelve years as a research analyst with AMR Research, Altimeter Group, and Gartner

Group and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has

worked with over 600 companies on their supply chain strategy and speaks at over 50 conferences a

year on the evolution of supply chain processes and technologies. Her research is designed for the

early adopter seeking first mover advantage.

http://supplychaininsights.com/

http://www.twitter.com/lcecere


http://www.supplychainshaman.com/

http://www.bricksmatter.com/reviews/

http://www.bricksmatter.com/reviews/