In today's rapidly evolving market landscape, managing inventory efficiently has become a daunting challenge. The consumer packaged goods (CPG), pharmaceuticals, chemicals, and oil & gas industries, in particular, face the unique challenge of aging inventory management.
Increasing volatility in demand has created a need to mitigate the risks of aging or expired inventory while balancing cost, service level, and working capital needs. Environmental, Social, and Governance (ESG) standards add additional complexity to this already intricate puzzle.
The Business Challenge: Aging Inventory Management
Addressing aging inventory goes beyond merely balancing stock levels – it involves operational efficiency, financial stability, and environmental sustainability.
Recent research sheds light on the staggering impact of stock inefficiencies. In the pharmaceutical industry, for instance, these inefficiencies could equate to as much as 3.6 percent of annual profits. Pharmaceutical companies have discarded 4.1 percent of their stock due to perishing, spoiling, or damage, plus a further 3 percent lost due to overproduction. Collectively, this accounts for a total loss of 7.1 percent of stock, highlighting the severe financial and operational consequences of aging inventory.
Likewise, in the CPG industry, slow and manual inventory processes lead to less than half of excess and distressed inventory being sold – and, when it sells, steep discounts are often required, averaging 71 percent off the cost. This results in only about 47 percent of excess inventory being sold, while a staggering 30 percent ends up in landfills.
Such outcomes are not only financially detrimental, but environmentally unsustainable, making more efficient management of aging inventory a critical concern.
Why Existing Solutions Fall Short
The complexity of this challenge is further amplified by the need to manage a high volume of exceptions and make accurate trade-off decisions on a daily basis. Traditional inventory management systems, with their lack of agility and inadequate analysis, are increasingly falling short in this rapidly-changing environment. They struggle to adapt to fluctuating market demands and fail to align with the growing necessity for sustainable business practices.
Traditional inventory management systems, though robust in their time, are now struggling to keep up with the dynamic nature of global supply chains. These systems typically lack the agility and depth of analysis required to adapt to rapid market changes. They often operate in silos, hindering the flow of information across different departments and stages of the supply chain. In practice, this limitation restricts your ability to make informed, timely decisions, especially in the face of fluctuating demand and supply scenarios.
Additionally, many of these systems do not effectively integrate sustainability considerations into their operational frameworks. As businesses increasingly strive to meet ESG standards, it has become apparent that enterprises need a more holistic approach to inventory management — one that not only addresses operational efficiency, but also aligns with broader sustainability goals.
The Need for Decision Intelligence in Inventory Management
The dynamic nature of today's global markets calls for a new approach to inventory management: Decision Intelligence. This paradigm shift transcends traditional data analytics by integrating advanced technologies including machine learning and artificial intelligence. Decision Intelligence enables businesses to not just react to market changes, but to anticipate and strategically plan for them.
This will be particularly vital in managing the aging inventory challenge, where rapid, data-driven decision making can significantly mitigate financial risks.
Our Decision Intelligence platform, Aera Decision Cloud™, represents a leap forward in this domain. It goes beyond conventional analytics by providing a holistic view of the inventory ecosystem, considering factors such as demand patterns, supply chain disruptions, and evolving market trends. This comprehensive view is crucial for businesses in high-stakes industries like consumer goods, pharmaceuticals, chemicals, and oil & gas, where inventory decisions directly impact financial performance and compliance with ESG standards.
The Benefits of AI for Decision Making
Our AI platform tackles the aging inventory challenge head-on by digitizing and automating business decisions. Aera begins by addressing the core issue: data fragmentation. Aera integrates disparate data sources, including batch-level inventory data, projected demand, and bill of materials information. This integration enables end-to-end data connectivity, allowing businesses to analyze product-expiry risks at a granular level to make more informed decisions.
Aera’s ability to identify exceptions by their criticality and suggest alternative solutions is a game-changer – making it possible to evaluate the risk and cost impact of various decision options, such as transferring stock, adjusting purchase and production orders, promoting liquidation, or writing off inventory. This capability allows your business to make nuanced decisions that balance financial objectives with operational and ESG considerations.
Implementing our AI platform provides significant improvements in managing aging inventory, directly impacting your bottom line. Companies can expect reduced losses from obsolete stock, more efficient use of working capital, and enhanced service quality.
Moreover, Aera’s learning capability ensures that businesses are not just making better decisions now, but are also equipped for future challenges. A key feature of our platform is its learning capability. As decisions are made and their outcomes analyzed, Aera continuously learns and adapts so that, over time, the quality of recommendations improves – leading to more effective decision making.
The Time to Act is Now
Aera not only addresses the immediate challenges of managing inventory in volatile markets, but also sets the stage for sustainable, long-term operational success. Aera’s continuous learning capability ensures that each decision made today informs and improves your decisions for tomorrow. This is not just a step towards smarter inventory management – it's a leap towards a more resilient and responsive business model.
In an industry where a fraction of a percent in turnover can translate to millions in savings, this evolving intelligence becomes a critical asset. With Aera Decision Cloud, your company can unlock the full potential of your data.
The time to act is now. Embrace the future of inventory management with Aera Technology and transform your business challenges into opportunities for growth and innovation.
Your company can see the impact of Decision Intelligence in weeks using your existing data and technology solutions. Watch our Aera Test Drive webinar and learn how you can measure the potential impact and value of AI for decision making.
Contact Naveen Reddy to learn more about the Aging Inventory Management Skill.