Artificial Intelligence for Inventory Optimization
Current inventory policies are creating both stockouts and excess inventory. Ordering too much at one time drives up average inventory, causing excess working capital. Not carrying enough safety stock leaves one exposed to changes in sales and operations.
Currently 1 out of 13 items that a customer wants to purchase is absent from the shelf because of out- of-stocks. Recurring stockouts drive 70 percent of customers to a different store. Stockouts translate to $355 million in daily losses (missed sales) in North America alone. Conversely companies in the U.S. face $443 billion in excess inventory due to inferior inventory practices.
This imbalance highlights the current process in which companies are ordering too much inventory while at the same time carrying too little safety stock. In short, the inventory cadence can be optimized by focusing on economic profit as the compass.
This disconnect will be amplified since only 36% of best in class and 38% of all other companies were technically ready to handle due to implications caused by Brexit and U.S. Trade/Tax policy changes. Best in class companies rated S&OP Planning as 4.54 and Inventory Planning as 4.07 on a 5-point scale with 5 being the most critical for organization readiness. All other companies rated 3.96 and 3.82 respectively.