Inventory management challenges are universal to supply chain professionals. Lisa Henriott, SVP of Product Marketing at Logility, joins us in this Innovation Destination – Executive Perspectives episode to discuss how organizations can leverage new technologies to broaden their viewpoint and have successful management of their entire supply chain on a much more granular level.
This interview was edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Hi, Lisa. Thank you for joining us today.
Lisa Henriott, SVP Product Marketing, Logility
Great, Tyler, thanks for inviting me to join the discussion. Just to give you a little bit of my background, I’ve got over 30 years of industry experience and as SVP of Product Marketing, I work with different teams like our R&D team, industry analysts and of course practitioners to help shape the future supply chain. I love talking about this topic.
I’m very excited to hear your perspective on this subject. More specifically, I want to hear your take on this recent survey that came out through CNBC, in which one-third of supply chain managers believe that warehouse inventories are not going to return to normal levels until sometime in 2024. Beyond that, almost 30% of them are resorting to selling excess inventory on the secondary market due to soaring storage costs. Inventory management is a challenge for supply chain leaders. Can you tell me, what are the challenges that you’re seeing related to inventory?
Yes, absolutely. Logility has over 800 customers in 80 countries, and I think inventory is a critical issue for pretty much every single one of them. Those statistics you were referencing, we definitely are seeing that. It’s really, today, the supply chain executives face a long list of inventory challenges. If you think about it, organizations have to juggle a growing number of SKUs, and there are longer lead times given their sourcing, and more complex supply chains on a global perspective. And at the same time, they have to offer faster fulfillment. There’s a lot of pressure within the executives that I talked to, to cut inventory and reduce costs—the inflation, rising transportation and labor costs—and there’s a lot of uncertainty out there. Of course, disruptions are something that we have to deal with in every supply chain every day, it seems, whether it’s geopolitical uncertainty, concerns about the global economy, etc. With the supply chain executives, there’s that pressure to cut costs, yet they’ve got to maintain service levels. That’s a pretty tricky balancing act.
There seems like there is more and more to account for every day. And in the last couple of years, there’s certainly been a lot of turmoil and a lot to take into consideration when you have to manage your inventory. Over the past couple years, maybe even going further back, what has been the go-to answer for inventory management issues? Do you feel that the out-of-the-box, one-size-fits-all type of inventory optimization solutions are viable today?
That’s where a lot of companies are coming from, but they realize that if they only focus on their finished goods inventory, that’s the place that everybody starts, but like you said, it’s one-size-fits-all, and all inventory is not the same. If you think about it, a lot of companies start with the finished goods, what’s in their distribution center and how they’re going to get that out to customers. But they’ve got to take a broader perspective. And we do work with a lot of companies that are starting to think about that bigger picture—more scenarios, more alternatives and how to optimize across all their locations, so that they think about how to service customers with a number of different options and across different time horizons. They’re factoring in different sourcing options, different production locations, different DC assignments, and of course, looking at how that impacts service levels.
Really, if you think about it, you’ve got to safeguard margins in this complex environment. The supply chain leaders have to have the ability to quickly evaluate alternative sourcing and inventory strategies, but at a holistic view. And so that’s why the one-size-fits-all, I think, a lot of companies are realizing that’s something that they’re quickly outgrowing.
My follow-up to that is, what’s available today that can account for all those variables? Are there newer technologies, are there newer strategies? What are the solutions that can really help supply chain professionals overcome those challenges?
Yes. There’s definitely a lot of new opportunities out there because, as we’ve all seen in 2023, there’s been a lot of hype around AI. But we at Logility have clients already gaining value from AI. We have this total inventory optimization approach that leverages AI to perform multi-echelon inventory optimization. And that might sound complex, but when you boil it down, it’s where you can quickly analyze the trade-offs at different levels, whether it’s your finished goods inventory, your work in process inventory, the raw materials, you get that holistic picture. And that’s something that with the newer capabilities that are there in AI, we’ve already got clients leveraging that to deliver some pretty substantial savings.
Say I am trying to right-size my inventory. I’m looking for inventory management solutions and I’ve heard about the artificial intelligence hype train, and something like what Logility offers sounds enticing. Are there certain steps that have to be taken to be able to implement such a solution? How can these organizations get ready to integrate these newer technologies? Is there certain data that has to be captured? Certain practices that you have to put in place today to be able to capitalize on implementing new tech?
Yes. Well, they’ve got a lot of this data already within their organization. And by layering the newer technologies and tapping into that data available, we’ve seen the clients take advantage of our AI capabilities, say for intelligent scoring, where they can do some economic prioritization, focusing the attention on those most important opportunities where they could grow business by having more inventory availability, or where they might be running thin and they’re going to be out of stock at a certain location.
And even if you think about just like how all inventory comes in a lot of different sizes and shapes, demand does as well. We have a very broad platform. We are talking about inventory today, but our clients are doing demand planning and supply planning and production scheduling. And sometimes that demand is very lumpy or sporadic. There could be a wide range of sizes; or say you had spare parts or industrial equipment. We’ve got capabilities that we brought to market recently that apply a more stochastic replenishment planning approach. And we’ve seen some recent results there with service level improvements ranging from 9 – 25%. And that’s pretty astonishing. That’s why companies are moving to these newer technologies so quickly—because they see the benefit.
And to be able to realize those benefits and overcome those challenges with this new technology is welcomed with open arms. Like you said, a lot of people are struggling with these issues and they’re looking for a solution. It’s good to know that there are solutions available out there. And I think that trend is just getting started. It’s going to continue to snowball.
You are right. And what happens with a lot of our clients, they sometimes start out with a pretty limited view. When they think about right-sizing their inventory, they, as I mentioned before, start on the finished goods level. That is where it’s not unusual for companies to focus there, because they can free up cash by selling the non-moving stock, reducing the supply, becoming more precise in their supply replenishment. But that ability to get a more comprehensive or holistic view—if they take it one step further, they can look then at their work in process inventories and evaluate more scenarios and alternatives. Now, they’re not just looking at what’s at their distribution centers, but what is in process in their plants or how they can pull in those raw materials from their suppliers.
And then finally, they get to a more collaborative view where they even bring in the collaborative planning with their customers. And that’s where they can really drive long term profitable growth and market share. That takes full advantage of that multi-echelon inventory optimization that we were talking about.
Could you expand on the multi-echelon inventory optimization? How does that help an organization right-size their inventory?
If you think about it as if you had a very myopic view versus you adjust the binoculars and you’re getting a lot broader of a view and an even broader view. Many of our customers have found significant benefits by tracing that inventory all the way through the supply chain, if you will, so that they can optimize at all the different levels, whether it is finished goods or work in process or back at the raw materials. And they can even optimize about 80% of their inventory over about four months. They take the initial step, and then they take a bigger step and a bigger step, but they can reduce inventory costs up to 15% while still improving their service availability as well.
That’s impressive. I think more and more organizations learn the hard way that that is the type of vantage point or viewpoint that you need to have when operating today. As we opened this conversation with, there’s so much to consider on a global scale that can disrupt your supply chain, and you have to be able to take account for all of that and be able to pivot and make sure that you have the materials and goods that you need flowing through your supply chain.
Lisa, I want to ask you: With the close of 2023 right around the corner and we’re heading into a new year, what does it look like for 2024? I know it’s hard to predict the future, but I’m curious, what do you think we’re going to see in terms of inventory management challenges in this upcoming year? What can organizations really anticipate in the coming months and how do they best prepare for what’s ahead?
It’s a great question because of everything that we’re hearing. The disruptions, of course the pandemic was a giant disruption for everyone and all the ripple effects of that, but the hits just keep on coming. If you think about the challenges, the logistics disruptions or the geopolitical or the economy, they’re not going to go away. And so that’s really what we’ve seen. Supply chain planners want to continue to fine-tune their plans and their processes on a more granular level. And that’s back to this multi-echelon inventory optimization. And they can consider the materials, the components, the sub-assemblies, so they’re not just thinking of finished goods.
And what we are already hearing from our clients is in 2024, even more of these companies are going to leverage the machine learning, the AI and the advanced solutions to automatically identify the best inventory policy for each SKU at each stocking location. They can do that based on their most current information on demand and the demand variability and the supply variability, and even considering the lead time between the facilities and the types of inventory stocked at each facility. We see the sophistication where more and more companies are leveraging artificial intelligence, machine learning, and being able to plan on a more granular level so they can be more responsive to those disruptions as they come.
I think you nailed it there with the perspective that the only way you’re going to be prepared, the only way you can be responsive, is broadening that view and really understanding your operation on a whole new granular level so that you can pivot and make changes when you need to.
Absolutely. And that leads to the ability to minimize the inventory investment while they can maximize customer service. Because if we didn’t have to worry about customer service, we could just cut those inventory levels. It is a very careful balancing act there.