Inventory optimization software: questions
The questions we are asked most often about inventory optimization software, answered without the marketing layer.
How quickly does inventory optimization software pay for itself?
Typically two to four quarters in the deployments we have measured, and the saving comes from two places: reduced safety stock and reduced expediting. The real return of inventory optimization software usually hides in the second, because expediting cost is spread across the logistics budget and never appears as a single line.
Isn't stock-out prevention just holding more stock?
Only if you model demand as a single average. Stock-out prevention is about distinguishing which product is at risk, when and by how much: a few fast-moving lines carry most of the risk, and lowering the safety margin on the rest moves the freed capital to where it matters.
How does it decide safety stock?
From a service level you choose, against demand variability and lead time variability treated as distributions rather than averages. Inventory optimization software that computes from two averages is correct for a world in which neither varies; the interesting cases are when both are elevated at once.
Can it move stock between locations?
It proposes transfers continuously rather than when someone notices a problem, which is the usual trigger. Multi-location inventory pools demand variability: ten stores each covering their own variability hold substantially more than one pool serving the same total.
What stops it churning stock around the network?
A threshold that carries the real cost of moving — freight, handling, and the risk the receiving location does not sell it either. A model that proposes transfers without those costs chases small imbalances at real expense.
Related: Demand Intelligence · Performance Intelligence