Intel's automated inventory planning: How it swapped 'rule-of-thumb' for algorithms

The company generated millions in inventory cost savings from SKUs using the automated model and increased gross profits $1.3 billion from 2014 to 2017.

What happened

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Why it matters

The "multiechelon inventory optimization" model turned an inventory management process that previously relied on "rule-of-thumb heuristics and spreadsheets" into one where planners accept an algorithm's automatically generated inventory targets 99.5% of the time, the researchers said.

As the researchers point out, the importance of getting inventory levels right was something Intel, a company that has been manufacturing for decades, understood quite well.

"Since Intel’s first device rolled off the manufacturing line, holding too much inventory has wasted capacity and holding too little has risked revenue," the researchers wrote. The effort got some push back in the early days with comments suggesting it wouldn't work or the current method was functioning fine. But when a former factory manager was appointed as the VP of supply chain, "he felt there must be a better and more scientific way to set inventory targets than just planner rule-of-thumb estimates applied across all products," the paper reads.

This news brief is based on reporting published by Supply Chain Dive on 2020-07-07. The original report is linked below.