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What SAP inventory optimization software should I consider?

Inventory Optimization Cockpit works in combination with MRP Monitor to evaluate key performance indicators. Here's a look at five critical features it offers.

Choosing inventory optimization software can be complicated.

CFOs, materials planners and inventory managers often have to jointly agree on critical key performance indicators (KPIs) pertaining to inventory management. The common objectives of this exercise include ensuring there's minimal capital tie-up of holding inventory, preventing stock-outs and overstocking, and attending to slow-moving and dead stocks in a timely manner. While working to agree on KPIs, stakeholders may become frustrated when the materials planning or actual inventory data needed to make an important decision isn't easily available.

Although SAP Logistics Information System (LIS) does include several KPIs, they aren't all available in one place. SAP Inventory Optimization Cockpit (IOC), also known as Inventory Controlling Cockpit, can help solve that issue. IOC is an add-on to SAP ERP Central Component that not only captures critical KPIs all in one place, it also fills in the reporting shortcomings of LIS.

However, to use IOC, companies must first implement MRP Monitor, another SAP add-on, since the planning data from MRP Monitor forms the basis for evaluating inventory-specific KPIs in IOC.

Here's a look at five features of SAP's inventory optimization software that can help you.

  • ABC/XYZ Analyses: Although ABC analysis (for materials with high, medium or low financial value) is available in LIS, XYZ analysis isn't. An XYZ analysis covers the consumption predictability and usage of a material, with x being the most predictable and z being the least. The ABC/XYZ analyses in one dashboard bring these two KPIs together by showing how ABC materials stack up for their consumption. This analysis from the inventory optimization software also shows the slow-movers and dead stock, enabling material and inventory planners to decide how best to manage them in future.
  • Dynamic inventory target value calculation: The system calculates and proposes what the target inventory of a material should have been, and then compares it to what it actually was for a given period. This calculation takes replenishment lead time and average material consumption for a given period into account to come up with suggested numbers. Further, it also suggests future inventory holding values so that planners can optimize inventory management by ensuring timely availability of critically required materials, while also tackling slow-movers and dead stock.
  • Range of coverage: A range of coverage defines the number of days during which the current inventory will suffice to meet future demand of a material. It's possible for a materials planner to define a range of minimum and maximum days to prevent stock-outs. Here, the replenishment lead time plays a central role in ensuring that the current inventory is able to meet a material demand during the time it takes to replenish the material.
  • Period-based comparison of key figures: It is possible to compare key figures, such as slow-moving stock between two periods (such as weeks or months) of the same or different year, to see if past inventory optimization efforts resulted in an improved inventory situation. The comparison is available for a plethora of aggregation options, such as at plant level, at storage location level, at individual material level or at material type, such as raw material or finished goods. Period-based comparison of key figures is available even for ABC/XYZ.
  • Measures and resubmission: With this functionality, it is possible to define and set measures or steps to be taken to optimize inventory levels and then to compare the measures taken with actual results. If the inventory optimization measures do not yield the desired results, it is then possible to update new measures and submit (or resubmit) them for evaluation and further decisions.

To ensure ongoing inventory optimization software initiatives, it is also possible to update the material master with the information from IOC, so that future inventory holdings closely meet the agreed upon KPIs.

Next Steps

How to reduce inventory with MRP

What your CFO needs to know about inventory

Why inventory matters to sales and operations planning

This was last published in January 2017

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