Technology Value Matrix 1H2015 Inventory Optimization
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Transcript of Technology Value Matrix 1H2015 Inventory Optimization
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THE BOTTOM LINE
This edition of the value matrix examines on-premise and cloud software vendors who
provide inventory optimization (IO), applications that allow companies to minimize their
inventory holdings while still ensuring enough stock on hand to maintain service and sales.
IO software continues to evolve as vendors develop friendlier interfaces for users, provide
more analytics, and start to apply artificial intelligence to these applications. Most vendors
now provide multi-echelon (MEIO) solutions as standard functionality, thus allowing
companies to adjust inventory holdings holistically across multiple locations in the supply
chain. Leading vendors have begun using demand signals such as point of sales data as
the replenishment input rather than sales orders. Although many vendors do have cloud-
based offerings, there are still some well-known vendors who deliver solutions only as an
on-premise applications.
Many solutions provide business intelligence and analytical capabilities to spot problems
and make smart strategic decisions. A couple of the leaders in this space have even begun
applying machine intelligence and genetic algorithms to provide keener insights into
inventory determinations. In addition, many vendors can model various what-if solutions
that allow companies to gauge the ramifications before making changes to service levels.
These tools provide the highest return for companies with complex supply chains with
large stock holdings and multiple stocking locations. These tools are especially useful for
companies setting granular safety levels for thousands of stock keeping units (SKUs)
Although these tools allow companies to set policies for maintaining minimum inventory
to support sales or part resupply, they still require extensive training in most cases for the
user to gain the expertise to leverage the tool to its full extent.
The challenge for vendors of inventory optimization applications will be to make these
tools friendlier and easier to use. Many well-known vendors still dont offer a graphical
user interface or a dashboard for tools. Still, in a dynamic global economy these tools can
help a company minimize inventory, thus freeing working capital, while supporting sales or
ensuring adequate parts inventory to maintain production or service uptime. These tools
RESEARCH NOTE
TECHNOLOGY VALUE MATRIX FIRST HALF 2015
INVENTORY OPTIMIZATION
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January 2015
ANALYST:
James
Cooke
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are especially critical to success for retailers and consumer goods manufacturers who are
struggling with omnichannel commerce.
LEADERS
Leaders in this first edition of the Matrix include, GAINSystems, One Network, Oracle, SAP,
Terra Technology, and Tools Group,
TOOLSGROUP
ToolsGroup, based in Boston, focuses its MEIO application on mid-Tier and Fortune 500
companies with large, complex supply chains. The inventory optimization (IO) tool is part
of ToolsGroup Service Optimizer 99+ (SO99+) platform, which also has applications for
demand forecasting, demand collaboration, demand sensing, production planning, and
trade promotion optimization. ToolsGroup can link to a variety of platforms including
IBM
Tools Group
Barloworld
Smart Software
Terra Technology
Manhattan
Blue Ridge
SAP
GA INSystems
V anguard
SAS
Logility
Infor
JDA
One NetworkOracle
Usa
bilit
y
Functionality
Facilitator
Expert
Leader
Core Provider
Inventory Optimization software continues to evolve as vendors begin to use artificial intelligence to spot emerging trends to better balance stock keeping. Vendors are offering cloud-based solutions as well as on-premise applications. Usabililty remains a concern as most tools require extensive training on the part of the user to leverage the application to its fullest extent. Nucleus expects those investing in usability and cloud solutions to gain market share.
SCM VALUE MATRIX 1H2015
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those from SAP, JDA, and Oracle. Many of ToolsGroups customers come from demand-
driven environments such as food and beverage, packaged goods, fashion, and
pharmaceutical. The vendor also has a large base of customers in asset-intensive
industries, such as bulk chemicals, and in manufacturing as the tool can handle bills-of
material conversions back to raw materials while considering production capacities.
The IO tool, which can accommodate a steady stream of demand signals, can assign
different service targets to each individual stock keeping unit (SKUs) by location. It uses
statistical demand and inventory models to balance stock upstream and downstream for
global supply chain. The solution can either be installed on-site or delivered via the cloud.
In fact, a number of the vendors customers do inventory target setting with the cloud
version on a SaaS basis. A secure cloud-based portal allows users to upload data and
retrieve inventory recommendations that are fed into the ERP system for execution.
Based on conversations with users, Nucleus found the IO tool from ToolsGroup has a
higher degree of functionality than most. For example, the software allows products with
similar characteristics to be handled in the same optimization category. But what sets
ToolsGroup apart from other vendors is its use of advanced computing technology.
ToolsGroup has begun deploying machine learning, a type of artificial intelligence in which
the software begins to make adjustments in this case for inventory based on its own
interpretation of data inputs rather than following the dictates of programmed instructions
in the application.
GAINSYSTEMS
The MEIO solution from GAINSystems, based in Chicago, uses proprietary algorithms to
evaluate supply and demand variability to set inventory stock levels. GAINSystems (which
stands for General Adaptive Inventory Solution Systems) creates a series of inventory and
replenishment plans that take into account targeted customer service levels as well as
maximum contribution to a companys profit margin. The software uses both sales orders
and point-of-sale data to refresh service-level stocking by item and location. In
conjunction with its inventory optimization application GAINSystems also provides
complementary tools for demand planning and forecasting, sales, inventory and
operations planning (SI&OP), and replenishment optimization. Those applications are
used primarily by businesses in distribution, maintenance and repair, and manufacturers
that have multi-echelon bills of material.
The IO tool uses proprietary algorithms, including genetic ones, for inventory policy,
service level, sourcing and network flow, and multi-echelon stocking. The software also
tracks forecast error and adjusts buffer inventory according to the magnitude and timing
of the forecast error. One unique feature of the IO tool is its ability to factor in order size
variation into inventory holding calculations. Another feature is its ability to weigh the
financial tradeoffs between expedited shipping for rapid replenishment versus the
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inventory carrying costs for holding more buffer stock. The software is delivered both as
an on-premise and cloud solution.
GAINSystems claims that its IO software is faster to deploy than many competing ERP
systems. Unlike many of the other vendors listed here, which sell their wares through
consultants, GAINSystems markets its IO tool direct to companies. Nucleus found in talks
with users that they gave this vendor high marks for usability and customer support.
TERRA TECHNOLOGY
Terra Technologys inventory tool determines minimum stock levels for each SKU at plants,
distribution centers, and retail locations. Located in Norwalk, Conn., Terra Technology
offers applications for demand sensing and transportation forecasting as well inventory
optimization. Terra Technology has a strong presence in consumer packaged goods with
such well-known companies as ConAgra Foods, General Mills, Kellogg, Kraft Foods,
Mondelez, Procter & Gamble, and Unilever as customers for its solutions. Terra
Technology describes its tool as MIO rather than MEIO as the inventory optimization
across supply chain nodes includes store locations as well as those for plants and
distribution centers.
Terra Technologys customers often use demand signals such as point-of-sale information
in addition to sales orders to drive replenishment. Based on stochastic technology, the IO
tool can assess all classes of inventory holdings, including finished goods, raw materials,
and work in progress. Terra Technologys software can be installed in-house or off-
premise as a cloud solution. The software is sold with a traditional license or on a SaaS
basis.
Terra Technology provides analytics that can model different scenarios, using daily
forecasts derived from demand signals. The analytics are time-phased and in-memory,
covering all components of inventory. Nucleus found that customers with high demand
volatility in competitive marketplaces favor its IO tool.
SAP
SAPs 2013 acquisition of SmartOPs provides the basis for two of the Walldorf, Germany-
based ERP providers MEIO tools. The SmartOPs solution lives on as SAPs EIS (Enterprise
Inventory and Service-Level Optimization) as well as in a new cloud solution called IBP-I,
which stands for Integrated Business Planning for Inventory. IBP-I is part of the cloud suite
of SAPs Integrated Business Planning solutions, which also encompasses applications for
sales and operations planning, a control tower and supply. The solutions are designed to
work together by exchanging near-real time data.
Both of SAPs IO solutions uses stochastic algorithms to set specific inventor and service-
levels for finished goods, work in process, and raw materials. They are designed to
maximize efficiency of inventory and working capital based on the customer service level
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goals set for items and locations. Along with analytics for demand, supply, and production
uncertainty, the MEIO tool can perform what-if scenarios to evaluate alternative strategies.
They can also set time-phased inventory policies for multi-tier manufacturing and
distribution supply chains.
The Integrated Business Planning solution is connected to SAPs Hana platform, designed
to process high volumes of data in real time, including point of sale information. Nucleus
found that many supply chain experts held SAPs MEIO tool in high regard for robustness.
ONE NETWORK ENTERPRISES
One Network Enterprises inventory optimization solution works in conjunction with its
Real Time Value Network, a platform for trading partners in a supply chain to share
demand signal information. Based in Dallas, One Network Enterprises has aimed its
solutions on consumer goods manufacturers and retailers.
The Intelligent Supply Solution matches the demand forecast against the inventory held by
all trading partners to enable multi-tier inventory optimization. Because the system
monitors demand, it can detect problems with inadequate stock, thus allowing planners,
buyers and suppliers to resolve issues.
Along with demand signals the software can factor in lead times, batch size and order
policies in determining inventory targets. By using demand signals for the input, the
system can reduce inventory holdings while improving in-stock availability to support
sales. (Nucleus Research, o221 A closer look at One Network Enterprises, October 2014).
ORACLE
Oracle, based in Redwood Shores, Calif., furnishes an MEIO solution thats usually sold in
conjunction with other applications from its ERP provider. Oracle Inventory Optimization
is part of the Oracle Value Chain Planning suite and its designed to work with other
supply chain management applications such as demand management, production
scheduling, supply chain planning, and network optimization. Like other value planning
applications, the IO can feed data into Oracles Advanced Planning Command Center, a
dashboard for visualization of key metrics. The IO tool is offered as a cloud-based
solution.
The MEIO application uses stochastic optimization technology to determine the correct
placement and amount of safety stock. When Oracle first developed its IO tool 15 years
ago, the application was focused on high tech industries. In determining inventory by
location in the supply chain, the IO tool factored in budget constraints, intermittent
demand, segmentation policies, and fulfillment lead time, as well as pooling and
postponement. Several years afterwards, Oracle expanded that focus to include asset
maintenance and service parts planning, adding such functionality as the consideration for
repair bills of material (BOM), sourcing, and service contracts. Recently, it has broadened
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functionality to meet the needs of consumer goods manufacturers and hybrid
manufacturers, which are companies that make products for a specific retail channel.
Added functionality includes consideration for warehouse storage capacity, cycle stock,
aggregate service levels, and analytics.
One feature of the Oracle IO tool is its capability for calculating safety stock over different
time periods as demand fluctuates. It can also factor in customer lead times to determine
stocking location in a supply chain network. In addition, the tool can consider the lead
times from using different modes of transportation in determining inventory and locations.
Finally, the tool can create scenarios that allow companies to compare service levels
against total costs as well as profitability for different customers.
Nucleus has found that most users of Oracles IO tool opt for that solution as part of an
overall deployment of the Oracle software suite. In fact, Oracle recommends that
companies deploy its demand planning and supply planning solution before proceeding
with inventory optimization. Its worth noting that the IO solution is well-suited for
companies that have implemented a supply chain segmentation policy.
EXPERTS
Experts in this edition of the Matrix include IBM, JDA, Logility, and Manhattan.
IBM
The Inventory Analyst module combined with IBMs ILOG LogicNet Plus XE balances
inventory levels at supply chain locations to maximize service levels while at the same time
minimizing cost. The MEIO tool from Armonk, N.Y.-based IBM provides for global
optimization of finished goods and work in progress inventory as well as raw materials.
The solution combines mathematical modeling with a CPLEX optimization engine. It can
consider such inputs for scenarios as product and facility data, demand data for
combinations of customer, product and planning period, shelf life and fill rates, and
historic and future planning periods. It can adjust inventory levels to meet fluctuations in
demand. It also comes with analytics to help companies determine the correct inventory
policies for business as well as set proper safety stock. IBM recently announced that a
cloud-based beta version of the tool would be available on a SaaS basis.
To maintain its edge in the marketplace IBM employs dedicated computer scientists who
work on advancing optimization technology. Although the CPLEX engine is very robust,
Nucleus has been told that users have to have a fair amount of inventory sophistication to
take full advantage of the application.
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JDA
Inventory Optimization software is one of the supply chain management solutions offered
by JDA Software, based in Scottsdale, Ariz. The MEIO software uses stochastic parameters
to define stocking targets. It can adapt inventory policies and stocking strategies in
response to varying market conditions, supply constraints, buying behavior, or customer
requests. The tool can be delivered for both on-premise and cloud deployment.
The solution uses sales orders to determine forecast error and to suggest segmentation
strategies, providing an input for the IO tool. Once the inventory targets are generated,
they are passed onto downstream systems like master planning that take those
parameters to ensure that stock is maintained to the required level. The downstream
systems like master planning take a look at existing inventory and incoming supply to
determine what to order or manufacture. The IO tool then readjusts inventory parameters
at regular intervals.
The screens on the user interface displays various criteria such as inventory parameters for
each item by location and time, inventory investment, holding costs, order costs, and
expected service levels. The tool can also create additional reports for the user.
MANHATTAN ASSOCIATES
Atlanta-based Manhattan Associates offers Inventory Optimization software thats widely
used in auto parts, pharmaceuticals, wholesale food distribution, and retailing. The on-
premise MEIO application uses a statistical demand forecasting engine to determine
replenishment both by location and SKU. The IO tool is one of the core applications in its
SCOPE (Supply Chain Optimization, Planning through Execution) suite.
Because of Manhattans emphasis on selling its software in the retail sector, the company
has put a lot of development lately into adding features to the IO tool of particular interest
to retailers. For instance, the tool can also adjust inventory policies to support a
segmentation strategy. In the past year Manhattan has integrated its IO tool with its
Distributed Order Management System, which is used by omnichannel retailers to
determine whether to use a store or warehouse location to fill a web-placed order.
The tool has advanced modeling capability to examine the impacts of strategy changes,
such as safety stock simulation, order frequency modeling and modeling capabilities for
investment, forward buys and opportunities. Although the IO tool comes with some basic
analytics, users need to add the module Supply Chain Intelligence for additional reports.
The software can also facilitate vendor managed inventory by giving trading partners
access to inventory data so they can manage shipments and improve in-stock
performance.
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LOGILITY
Logility, based in Atlanta furnishes MEIO software that uses advanced modeling
techniques to balance resources and costs against service levels to set inventory levels.
The tool Voyager Inventory Optimization is used for both tactical and strategic planning
in such industries as chemicals, consumer goods, food and beverage, apparel, footwear,
life sciences, durable goods, and high tech.
Voyager Inventory Optimization provides visualization of the global network and inventory
policies. It can create what-if scenarios to evaluate alternative supplier configurations,
amounts of buffer stock, transportation movements, and product and part lead-time. It
can also assess postponement strategies and SKU rationalization.
It can be deployed on premise, in the cloud or as a hosted solution. Although available as
a standalone application, Inventory Optimization is often deployed with other tools in the
Logility Voyager Solutions suite.
FACILITATORS
The facilitators in this edition are Barloworld, Blue Ridge, and SAS.
BARLOWORLD
CAST from Barloworld Supply Chain Software now combines MEIO techniques with
routing and scheduling optimization with the addition of new functionality from its new
CAST Flow module (formerly called CINO Inventory Strategy). Barloworld Supply Chain
Software is part of the Logistics Group, which is a unit of the South African Barloworld
Group conglomerate. Barloworld Supply Chain Software has its global headquarters in
West Midlands, United Kingdom and its U.S. offices near Chicago in Naperville, Ill. Along
with an inventory tool Barloworlds Supply Chain Platform offers applications for supply
chain design, demand planning, and transportation planning.
The IO software directs stocking from the perspective of least cost to maintain service
levels. It calculates inventory and replenishment requirements for every SKU at every node
in the supply chain. Because the application also takes into shipment routing and sourcing
in calculating replenishment, it can set inventory policies that allow for customer service
target levels at the minimum cost. In addition to risk and constraint management, Cast
Flow can also do supply planning, inventory simulation, flow path visibility and
optimization, as well as cost, investment, and service balancing.
One interesting feature for enhanced usability is the softwares drag and drop feature
that allows supply chain planners to build the baseline for inventory. The software also
can facilitate what-if scenarios and set safety stock using risk profiles. The solution, built
on Microsoft Technology Platform, is available for both on-premise and cloud deployment.
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BLUE RIDGE
Blue Ridge, headquartered in Marietta, Ga., provides inventory optimization as a
component of its cloud-based SaaS solution. Other modules in its Supply Chain Planning
Suite include forecasting, planning, allocation, and replenishment. The MEIO solution
aligns inventory levels with product availability and demand. Blue Ridge has focused its
software to date on midsize retailers, and multiple industry verticals of wholesale
distributors who want to manage their cycle and safety stock by SKU across multiple
locations. The company also has a companion analytics application, offered as a
standalone solution, thats deployed by major drug and fast-food chains.
To determine safety stock levels the application uses both stochastic demand and causal
demand (elements like promotions, social media chatter, or weather forecasts that prompt
consumer buying). In the past year Blue Ridge has expanded its solution offering in
demand planning, end-to-end collaborative supply chain planning, and allocation, thus
giving the company an entre into fashion retail planning and allocation. In its newly
released allocation module Blue Ridge can parse out inventory when the aggregate store
demand for a specific SKU exceeds the supply on hand in the distribution center, thus
ensuring that each store gets at least part of its stocking requirement. Blue Ridge also
added a feature that allows for secondary sourcing in the event a key vendor cant supply
an entire order.
Blue Ridge can be integrated to such ERP platforms as Oracle, SAP, Infor, Epicor, and
Microsoft Dynamics. Nucleus found that users gave Blue Ridge high marks for training
and support.
SAS
SAS Institute, based in Cary, N.C., provides for inventory optimization in its Demand-Driven
Planning and Optimization (DDPO) software. That application has five components or
workbenches: demand signal analytics, forecast analyst workbench, new product
forecasting, collaborative planning workbench, and an inventory optimization workbench.
Because all five applications sit on a common data repository, they can readily share
information among themselves. The data repository uses such types of information as
point-of-sale data, shipments, sales orders, promotions and pricing. SAS focuses its DDPO
software suite on the manufacturing, consumer product goods, and the retail and telecom
sectors.
The inventory optimization and replenishment algorithm, which uses stochastic
technology, provides for single, dual or multi-echelon optimization by SKU level and
location. It calculates inventory levels and replenishment policies based on user-specified
constraints and inputs such as required lead times, costs, presentation levels, push- or
pull-type supply chain, and targeted service levels. In the past year SAS had upgraded the
usability by adding a web-based user interface and providing for seamless integration with
its Forecast Analyst Workbench component for demand collaboration. Its also improved
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functionality by boosting computer times to overcome retail data problems and by adding
the ability to constrain variation when trending is observed.
One interesting feature is an order suggestion system designed to assist buyers and
planners in reviewing optimization of orders. SAS said this feature builds trust in the
software such that the users can let the automated process suggest and promote order for
regular products to the ERP system, allowing planners and buyers to focus on orders of
products in short supply or those in promotion. Although the solution was developed as
an on-premise solution, SAS does offer a hosting option.
CORE PROVIDERS
Core providers are Infor, Smart Software and Vanguard.
INFOR
Privately-held Infor based in New York City provides an MEIO Inventory Planning module
complimenting their demand and supply chain planning solutions. Infor targets the
application at such industries as wholesale distribution, after-market automotive,
machinery and industrial equipment, and manufacturing in such areas as food and
beverage, consumer products, specialty chemicals, and industrial equipment. Infor has
plans to offer demand planning in the cloud early in 2015.
The tool can set safety and target stock levels for product by location, taking into account
such factors as product expiration date and seasonal variability. To calculate stocking
levels the tool receives inputs from both demand and supply planning. Infors Demand
Planning application feeds demand variances and accuracies into the IO tool while a
supply planning application contributes lead-times, lead-time variability, replenishment
cycles and other parameters. Earlier this year Infor upgraded the application to include
demand sensing, and periodic item forecasting.
The IO tool allows a company to redistribute inventory to meet specific service levels. It
can assist a company with a segmentation strategy, reserving the highest levels of service
to specific customers. The tool can perform what-if analysis, simulating the impact of
lead-time reductions, service changes or alterations as well as model the expense of
different scenarios. Despite the functionality for scenario modeling, Nucleus has found
that users need a fair amount of training to take advantage of such features.
SMART SOFTWARE
With its headquarters in Belmont, Mass., Smart Software offers an inventory optimization
tool along with others for sales and demand forecasting, intermittent demand planning,
promotion planning and collaborative forecasting. Although Smart Software has
customers in aerospace, automotive and transit, manufacturing, food and beverage, as
well as pharmaceuticals, its solutions have gained traction among distribution companies
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facing a just-in-time challenge for delivery. Another major customer group are
organizations that use or deal in service parts as its forecasting solution assesses
intermittent demand. The vendors software is available as both an on-premise installation
as well as a SaaS option delivered from the cloud.
The IO tool is designed to find the inventory sweet spot the minimal amount of safety
stock required to meet the desired service level such that a company has no overstocking
or understocking. Smart Software recently released Service Level-Driven Demand
Planning (SLDP), which is designed to achieve service level targets within budgetary
constraints while avoiding over-stock or under-stock situations. SLDP can model inventory
optimization possibilities, helping supply chain executives to weight trade-offs in making
stocking determinations. SLDP thus can determine the correct service level to use in
setting up the inventory reorder point in the IO tool.
Nucleus has found that Smart Softwares IO tool and other applications enjoy high favor
with managers in operations, especially in distribution or transit services, who have less of
a business need for an inventory optimization tool bundled into an enterprise-wide
solution from an ERP vendor.
VANGUARD
Vanguard Software Corp. in Cary, N.C., offers forecasting and analytics tools. Its Inventory
Optimization tool is part of the Vanguard Forecast Server product line. Besides inventory
optimization, that suite includes software for sales forecasting, demand planning, financial
forecasting, cash flow management, and sales and operations planning. While these
products are sometimes integrated, the applications are licensed and sold separately. The
applications can be deployed on-premise or through cloud access on a subscription basis.
The inventory optimization tool is predicated on use of Vanguards forecasting solution.
Its cloud-based application inventory optimization tool can consider such variables as fill
rates, service-level goals, buying restrictions, demand seasonality, and financials. The
solution can model demand including intermittent for new products and evaluate
locations for optimal safety stock, reorder thresholds, and purchase quantities.
The tool offers a web-based user interface that supports company-wide collaboration. In
the past year Vanguard has increased the tools usability by simplifying the user interface
and adding a systems administration dashboard. It has upgraded the functionality of its
IO tool to include total inventory cost forecasting, a report writer, and an integrated batch
job schedule and to offer Monte Carlo simulation.
Although Vanguard has customers using its inventory solution, they generally use that
application with the forecast solution. Because of the robustness of the forecast solution,
which offers predictive analytics, Vanguard has had customers buy its software package
only to use the forecast application with another IO tool.