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Overcoming Inventory Optimization Challenges with AI-Driven IP&O Solutions

You may have heard of Smart IP&O, a cloud-based solution that integrates with Epicor and provides advanced analytics and optimization capabilities. But what exactly is Smart IP&O and how can it help you achieve your inventory goals?

May 01, 2024

Supply chain challenges are more a constant these days than an exception. To prepare for these inevitable bumps in the road, your business needs to help ensure accuracy and timeliness in inventory planning. Optimization and agility are words that get thrown around often, but with little direction for how to translate them into real-world improvements.

Optimization is a systematic approach to boosting efficiency, minimizing costs, and achieving better outcomes. For inventory management, optimization is a delicate balance between improving your return on assets and losing sales and customer goodwill. This balance requires continuous monitoring, rigorous testing, thorough evaluation, and timely adjustments from one period to the next.

Agility is effectively handling unforeseen events, particularly those that cannot be anticipated or planned. There’s a common belief that supply chain agility can address all supply chain challenges. However, there is a misconception that agility only means speed. Although responding quickly to unexpected changes in demand is important, doing so without considering cost-effectiveness might not be the best long-term solution. Responding quickly but forsaking quality does not add much value, either. Instead, agility can be viewed as a combination of adaptability and nimbleness in the face of unexpected change.

The question that many businesses often ask is: Why are we struggling with inventory optimization? While the factors inhibiting progress in inventory management can vary from one company to another, there are some  common hurdles that many businesses across sectors need to overcome:

  1. Limited access to data and the tools needed for optimization—Optimizing processes starts with access to the right data, along with robust inventory optimization tools.
  2. Forecast errors—Reducing demand forecast errors during planning has twice the positive impact of reducing variability in lead times during execution.
  3. Lack of real-time visibility leading to difficulty in balancing stockout costs with inventory carrying costs—Improving return on assets means reducing inventory. Because inventory is valued at cost and not the selling price, for high product margins, stockout costs outweigh holding costs. High-margin items can be low-cost, which makes them critical to the bottom line. The manual nature of some of these processes and the lack of real-time visibility makes it hard to minimize the creation of obsolete/slow-moving inventory, while making it harder to determine which items can be optimized.
  4. Poor seasonal forecasting leading to longer replenishment times—Seasonal products are challenging to plan because the buying season is short but the procurement times are long, so businesses must gamble on which items to store. This makes accurate forecasting (factoring in trends and seasonality) an important capability.
  5. Poor reporting and analytical capabilities making it difficult to reduce lead times—Lowering the replenishment lead time will result in the largest deduction in total inventory, but when the business is not able to accurately report historically and currently, this task becomes more challenging.


The Application of AI in Inventory Optimization

Inventory carrying costs often exceed what businesses might initially estimate. When considering all relevant factors—such as borrowing rates, warehouse storage expenses, taxes, and insurance—these costs typically fall within 15% to 25%. All the reasons above can make inventory optimization a constant uphill battle for many companies.

Businesses are prioritizing agility in their supply chains and investing in robust inventory planning and optimization (IP&O) solutions. Due to technological advancements and global competition, the applications of Artificial Intelligence (AI) in inventory management have become increasingly important. Companies strive to manage their supply chains effectively, achieve high quality, improve efficiency, and reduce costs. Machine learning algorithms are commonly used in this field, and interest in AI methods has grown significantly in recent years.

Today’s AI algorithms can review market trends or other historical sales data to predict future demand more accurately. They can also easily analyze market conditions that affect demand and competition, enabling businesses to adopt the right pricing strategies to effectively manage their inventory levels. This is just the initial phase of AI applications in inventory management. In the years ahead, we can expect AI to continue to transform the field of inventory management.


Enhancing your Inventory Planning and Optimization with Epicor and Smart Software

Epicor recently acquired Smart Software, a leading provider of AI-driven IP&O applications, and an existing Epicor ISV partner. The Epicor acquisition of Smart Software accelerates our delivery of best-in-class, cognitive ERP solutions—working together, we’re helping provide practical applications of AI across the spectrum of business operations, from the shop floor to the top floor of makers, movers, and sellers like you.

Epicor and Smart Software deliver Epicor Smart Inventory Planning and Optimization, utilizing cloud and AI technology to combine robust forecasting methodologies, optimization techniques, and consensus demand and inventory planning via an easy-to-use web interface, accessible through any browser.

Smart Software boasts several remarkable capabilities, including automated forecasting that considers seasonality and trends, support for tradeoff analysis, and simulation or stress testing features. Additionally, Smart Software leverages AI to enhance forecasting precision by seamlessly integrating daily demand and supply signals. This improves accuracy, enabling users to swiftly address inventory imbalances, assess operational performance, and reduce product and inventory costs.

Over the years, Smart Software has guided customers in planning for the future with greater precision. With its array of inventory optimization, forecast modeling, consensus demand planning, and analytics capabilities, it empowers supply chain leaders to harness inventory as a key advantage. As a result, businesses have enjoyed greater forecast accuracy and superior results.

Proton, a top-tier pump manufacturer, revolutionized its supply chain using Smart Software’s IP&O. The collaborative features, advanced analytics, and seamless integration of Smart software combined with  Proton's ERP system resulted in precise forecasts, ideal inventory levels, and increased customer delight.

In addition, BC Transit, a leader in transportation solutions, successfully forecasted the financial ramifications of inventory stocking decisions. Armed with this data, they have been able to effectively manage capacity, criticality, and inventory costs, thereby minimizing orders, optimizing order sizes, and addressing lead time variability, particularly for items with extended lead times.

The Epicor Commitment: Cutting-Edge Solutions and World-Class Capabilities 

Existing customers of Smart Software now have the advantage of being part of an extensive network that includes manufacturers, distributors, building supply operators, retailers, and automotive aftermarket customers within Epicor. This collaborative community fosters stronger trading relationships and data-sharing ecosystems. Additionally, these customers gain access to a wide-ranging portfolio of Epicor cognitive ERP solutions, which go beyond inventory optimization. These solutions are seamlessly integrated with the latest Epicor ERP platforms. Furthermore, customers benefit from enhanced global customer support, comprehensive training, and cutting-edge research and development resources to continually enhance their products.

With Smart Software joining Epicor, customers can confidently expect a greater ability to strategically plan, thoroughly analyze, and swiftly adapt to future opportunities while driving sustainable growth and paving the way for lasting success.

Learn more about how Epicor and Smart IP&O can help you optimize your inventory with AI-infused, people-centric solutions..