Argon & Co on the Importance of Inventory Optimisation

Argon & Co, a global operations transformation consultancy, boasts extensive expertise in supply chain planning, procurement, manufacturing, logistics, finance and shared services.

The firm's approach involves collaborating closely with clients to uncover the root causes of complex operational challenges, ultimately enabling them to achieve their strategic and operational objectives.

Crispin Mair, founding Partner at Argon & Co, plays a pivotal role in shaping the consultancy's global expansion strategy and ensuring value delivery across its international clientele. His responsibilities extend to leading Argon's European food and drink sector, while also overseeing the UK's data and AI service lines.

Speaking to Supply Chain Digital, Crispin highlights the critical importance of inventory optimisation given the current economic landscape.

How can optimising inventory help firms navigate the challenges posed by rising interest rates?

The past two years have been an uphill battle for many firms, as central banks have raised interest rates significantly in an effort to tame inflation. This has steadily increased the cost of doing business, hitting industries that need to manage large inventories especially hard.

Added to this, businesses are still grappling with supply chain complexities lingering from the pandemic, plus tensions in raw materials supply, soaring costs and more demand volatility.

Whatever their size, companies need to focus on cash flow management. When firms face debt or cash flow challenges, for many the natural response is to freeze capital expenditure and manage receivables and payables more tightly.

Inventory leverage, however, is less often exploited. Firms don't always pursue inventory reduction for many reasons, often stemming from accounting principles and their broader implications.

For instance, in businesses that manufacture their own products, reducing inventory often means producing fewer units, which can result in lower overhead recovery, depending on how accounting rules are applied.

For companies that purchase stock, reducing inventory can lead to smaller purchase volumes – which may cause the company to miss out on annual purchase volume rebates which are offered by suppliers for buying in bulk. This could potentially offset the savings made by cutting inventory.

But many types of firms – particularly those holding high levels of inventory – could be unknowingly sitting on a goldmine, ready to be unlocked to free up working capital, unlock stock savings and minimise waste.

Inventory optimisation programmes can reduce inventory by 15-30%, significantly lowering the costs associated with warehousing and depreciation.

Effective inventory optimisation requires collaboration across key business functions such as purchasing, logistics, supply, production and sales.

When these efforts are aligned, these projects can generate the cash needed to curb the effects of rising interest rates and unlock capital which can then be reinvested into growth initiatives to set firms up for success in the long term – even when interest rates return to normal.

What can effective inventory management unlock for procurement and supply chains? 

Inventory management has traditionally been perceived as a ‘tick-box exercise’ by organisations, meaning its potential has been overshadowed.

Modern inventory management has evolved into a strategic value driver and, when optimised effectively, it can generate additional cash, reduce waste and minimise storage costs to allow firms to channel funds back into the business.

Effective inventory management also creates collateral improvements for firms, such as better customer service and logistics costs reductions.

The unlocked working capital can also be used to boost firms’ financial conditions, like paying down debt, without affecting dividends or the company’s credit rating.

What tech is helping to shape inventory optimisation?

Traditional technology like demand sensing tools, advanced analytics, cloud computing and robotic process automation (RPA) have been used for years to optimise inventory, but have become more accessible and affordable over time.

Attention is now turning to the strategic implementation of AI to reshape inventory management, improve forecasting and drive faster and more real-time decision-making.

While AI is still in its infancy, many large corporations are leading the way in its implementation to drive change in specific areas for inventory management.

One of the most significant benefits of AI in optimising inventory is the ability to make real-time adjustments. AI can process diverse data streams such as social media, news feeds, weather conditions and market trends to instantly update forecasts, leading to more responsive and accurate inventory management.

Certain product lines hugely benefit from real-time decision-making, so incorporating external data on consumer spending, including point-of-sale data, weather patterns, etc., enables businesses to develop bespoke forecasting tools that indicate optimal launch times, promotional effectiveness and ideal locations for product placement.

AI is also reshaping order processing by interpreting, checking and challenging orders from various channels, like emails, online order forms and phone calls, standardising each into one standard correct format to feed into enterprise systems, thereby achieving speed, accuracy and efficiency.

So too in replenishment planning and execution. By automatically calculating the optimal reorder points and quantities based on predicted demand and current stock levels, firms can reduce the chances of stockouts and overstock situations.

Most leading companies have by now implemented their own AI-driven ordering systems, integrating forecast and actual sales data between them and their customers – helping to increase the visibility of data and connect one supply chain to another.

Scenario planning with AI is also making waves across inventory management, enabling the simulation of thousands of supply chain fulfilment scenarios and offering recommendations for risk management and contingency planning. These systems learn from planners' actions, becoming more accurate over time, though the quality of outcomes heavily depends on the quality of input data – or “garbage in, garbage out”, as the saying goes.

Technology is – and will continue to – shift the future of inventory management. Newer tools, such as continuous risk monitoring, hold promise to scan hundreds of data sources to summarise risks in real-time. These AI-powered tools can prioritise global events impacting supply chains, creating live dashboards that can sound the alarm over critical issues, such as disruption from a key supplier and suggest immediate actions to mitigate risks. These innovations are paving the way for more responsive inventory systems.

What are your goals for the next 12-18 months?

The next 12-18 months are set to be an exciting chapter for Argon & Co. I aim to lead the development and global rollout of our Soft Process Automation proposition – a solution combining data management, transformation, generative AI and robotic process automation (RPA), which will help our clients reach the next level of automation.

This includes all aspects of supply chain automation, such as minimising human error when paying out invoices, automating order processing, or automatic inventory counts.

I'm also committed to helping steer our business towards becoming the global leader in operations strategy and transformation. This includes not only expanding our global reach, but also ensuring we continue to help our clients achieve their potential and see real change.

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