Inventory Optimization Will Expand 13%

Advanced Inventory Optimization (AIO) is expected to grow at 12.6% over the next five years, according to a study by Dedham, Mass.-based ARC Advisory Group. The market was $99.2 million in 2005 and is forecasted to reach $179.6 million in 2010, according to "Advanced Inventory Optimization Worldwide Outlook: Market Analysis and Forecast through 2010."

AIO is different from traditional supply chain planning solutions in that it simultaneously calculates where and how much inventory should be held across the network of locations at which inventories could be held. Traditional solutions use single stage inventory calculators to determine inventory targets for a single node in the supply chain.

Due to the complex nature of AIO, this software solution will generally be outsourced but in a different manner than other outsourcing as it requires very high skill levels for implementation, according to the study.

Complexity doesn't translate into a low ROI according to Steve Banker, service director for supply chain management, ARC Advisory Group. "When I asked one company how long their pay-back period was following implementation, they said they had received full payback prior to the implementation. When asked how that could be, they explained that the AIO supplier came in and entered their data into the software to do an analysis of potential savings. Once the "bake off" was done, the supplier hosted the solution and provided inventory targets while the implementation began. Twelve weeks later the implementation was complete, but the solution was already paid for prior to the company's version of the software going live."

The study can be found at:

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