Sumitomo Corporation of America Turns Inventory into “Ready Money”
For years now, inventory has been given a bad name. But inventory isn’t the problem—it’s the classical inventory optimization approaches that result in overstocks and service failures.
Recently we discussed Sumitomo Corporation of America’s inventory strategy with Deputy Head of Corporate Logistics Evrim Ertugrul. Read on to hear the secret to experimenting in a risk-free environment to pinpoint inventory targets with the right balance of trade-offs between costs and service to hit the bullseye.
Tell us a bit about Sumitomo and your background.
Evrim: Sumitomo Corporation of America was established in 1952 and is headquartered in New York City. The SCOA is the largest subsidiary of the Sumitomo Corporation, one of the world’s leading traders of goods and services. Sumitomo Corporation is headquartered in Japan and is an integrated business enterprise working with multinational projects as an important international investor and financial product distributor worldwide.
We serve our clients by strategically and organically integrating our business foundation and diverse, high-level functions. Sumitomo creates new values by staying ahead in dealing with changes and transcending existing frameworks to help solve social issues.
What are the biggest inventory challenges you see facing business leaders in industry today?
Evrim: In the current Sumitomo business landscape of our global supply chain, businesses operate within an international network of suppliers and clients. So, as the competition increases in terms of product, quality, and price, the pressure on our supply chain also balloons.
We work and exist within an increasingly complex supply chain. Customer demand is constantly shifting; keeping too much inventory could result in obsolete inventory. But keeping too little could leave you unable to fulfill your orders.
Many companies are looking at not how to reduce inventory costs but how to use inventory as a weapon to be more resilient when a disruption inevitably occurs. Others simply want to quantify how risky their supply chains are, evaluating factors like
- Lead time
- Capacity
- Variability
They need to figure out their tolerance for risk when these disruptions occur.
As we interact with other players in the supply chain, we must rely on data –– not gut feeling –– in our decision-making. No one is looking at supply chain design from a high-level view. Businesses focus on the daily tasks at hand and don’t have the tools or bandwidth to look beyond today. This narrow perception poses huge challenges for business leaders across industries.
Why do traditional, decades-old inventory optimization methods tend to fail?
Evrim: We must acknowledge the complexity of inventory and the supply chain. This increasing complexity requires optimization at every level of design. Traditional models aren’t built for the fluctuations and disruptions found within real-world supply chains.
Traditional optimization methods assume average demand and guaranteed upstream service that just doesn’t work in the real world. When you try to apply the outcomes of these solutions, they fail.
That’s why we’ve switched to Optilogic. Cosmic Frog allows us to model real-world scenarios. Their inventory simulation approach optimizes inventory levels, allowing us to balance for the factors that we care about the most.
“Partnering with Optilogic and capitalizing on Cosmic Frog’s powerful cloud-based simulation has empowered us to rethink our inventory strategy and build resilience into every step. That’s the kind of power and stability we need to continue doing what we do at Sumitomo.”- Evrim Ertugrul
How has Sumitomo used Optilogic’s simulation models to turn inventory into “ready money”?
Evrim: Inventory is money in our pockets. It just exists in a form other than cash. We’re always exploring how we can convert this inventory into “ready money.” We don’t want to merely solve the daily problem; we want to explore the opportunity to improve high-level, long-term inventory management.
Using Optilogic’s inventory optimization module, we apply the cloud native genetic algorithm, which allows us to run unlimited inventory scenarios in a zero-risk environment. This tool gives us the data we need to build our inventory strategy that balances risk, cost, and service.
Additionally, Sumitomo constantly evaluates and evolves our supply chain design center of excellence, providing support related to:
- Supply chain design
- Best practice research
- Inventory optimization through simulation
- Network design
Utilizing Optilogic’s Cosmic Frog platform, we can test our more than 20 locations across the Americas, centralize the flow of products, and optimize our inventory strategy from start to finish. And thankfully, Cosmic Frog does more than simply collect this data; it organizes it so we can use it to create models and make the best decisions for our supply chains and inventory at any given point.
What advice would you offer to companies considering this approach to inventory strategy?
Evrim: A significant obstacle to companies acting on their inventory is that they feel overwhelmed. Sumitomo was there, too. We needed to answer these questions:
- What do we need to do?
- Where should we start?
- How are we going to start?
Optilogic helps break down our tasks into bite-sized pieces that are easier to tackle. Cosmic Frog allows us to focus on our opportunities because the program presents all possible options. It provides the data we need to explore options and find the better way to improve what we’re doing. My suggestion to businesses considering this approach? Jump in. Change your focus from fixing the problem to exploring opportunities.
If you’re missing data, make some assumptions, run these models with those assumptions, and then conduct sensitivity around it. Whatever you do, don’t become paralyzed by a lack of data. There are a lot of ways that you can fill the gaps and begin. If you’re not starting somewhere, you’re not digging into the data that helps you see what you need to do to perform long-term.
Partnering with Optilogic and capitalizing on Cosmic Frog’s powerful cloud-based simulation has empowered us to rethink our inventory strategy and build resilience into every step. That’s the kind of power and stability we need to continue doing what we do at Sumitomo.