Inventory optimisation (IO) is now among the top three priorities for many supply chain organisations as they seek to create increased efficiencies during the continued global recession.

According to a new report from IDC Manufacturing Insights, over the next five years, supply chain modernisation, network "rightsizing," and asset optimisation would see an increased focus.

IDC estimates healthy growth in global IO application spending in the 10 per cent per annum range.

"Dramatic changes in business are having an inevitable impact on a company's supply chain network," says Simon Ellis, IDC Manufacturing Insights practice director, supply chain. "Optimising efficiencies in the supply chain – particularly inventory – has been propelled up the priority list for many companies. Increasing the productivity of assets has taken on more importance because of its direct relationship toward maximizing working capital and improving the bottom line," he adds.

IO applications are designed to plan inventory policy across multiple dependent echelons of a supply chain, in multiple planning periods. Essentially, they set inventory targets up and down the supply chain on a simultaneous basis. These applications can also provide the ability to create what-if quantification of the impact of certain business decisions on overall inventory management.

IO technology has increasingly been adopted and deployed by leading-edge companies. Decision processes such as overall sales, inventory, and operations planning (SI&OP), "profitable proximity" sourcing, and new product innovation can all be aided by this technology. Ellis states, "If inventory optimisation is not on your short list of priority projects, you could be failing to capitalize on significant supply chain management benefits."

The cost of inventory optimisation is variable but a typical implementation should be expected to cost between $300,000 and $500,000 for software, plus implementation costs in the same range. The result can be meaningful savings: it's not unusual for these improvements to provide RoI within a year and result in an inventory reduction in a global supply chain of as much as 25 per cent. While the results vary from company to company, given the current economic climate, the potential benefits are compelling.

According to the report, this market has been characterized by smaller, best-of-breed vendors, providing a wide range of solutions offering differing benefits. However, notable applications are increasingly available from the larger software vendors. The IDC Manufacturing Insights report provides overviews of the market and an assessment of seven key application vendors that it believes will shape the direction and overall adoption factors within this market.

These types of assessments are intended to help IT and business executives review a short list of suppliers so as to initiate a technology buying-decision process.