Three "related" events occurred over the past six months that caught my eye. The first one was the Gartner Hype Cycle for Analytic Applications that came out August 8, 2012. The second one was the announcement, in February, of SAP acquiring their long time partner, SmartOps. The last was Lora Cecere's "Supply Chain Shaman" pronouncement about the demise of the inventory optimization industry, written right after the SAP acquisition. In that article Cecere posted her "toast" to the end of an industry.

I am in the process of writing a book titled, Demand Driven Inventory Optimization and Replenishment. If all goes according to plan, it will be out by mid summer 2013.  There have been plenty of books written about inventory optimization (IO) from the perspective of a PhD validating his/her stochastic algorithms, but almost none on what the layman executive might want to know about inventory optimization.  When I started writing the book it was to help the supply chain executive understand what shortcomings are built into present day ERP/SCM systems so they work the way they do and to get a glimpse of how IO corrects the technical problems and upgrades the "human error" activities so they don't happen with such frequency.  In the end, how can IO make already purchased systems run better?

The research put into writing this book and my work of more than ten years in the industry opened my eyes to something that goes beyond "hype" and into the realm of "snake oil."  As most everyone knows, the inventory optimization industry grew out of academic endeavors.  Professors at three to four major operations research colleges took their findings and developed companies all around the same 2000 to 2002 time frame.  Each of these companies strove to build a market share using, basically, the same algorithms.  Indeed, the initial drive into the market was for these professors to "differentiate" their computations.  This led Lora Cecere, when she was at AMR, to call out the industry in one of her early reviews with a wonderful article called "Stop the Math Wars."

It wasn't just just the math!  Over the years I have reviewed scores of request for proposals (RFP's) from various boutique IO companies as SAS moved into the space.  What I found were:

1. "Install bases" that included everything from real installs to one-time, proof-of-value engagements.  These so called "installs" would have supported a $70-100 million company, but the actual company revenues were in the $3-5 million range.  
2. Sales figures for a single company sale and installation that were reported as more than 60 individual sales.  They reported each store and distribution center as individual sales.  In the end, these RFP's showed companies who would palmed themselves off as extremely profitable and much larger than they were!  The industry I was working in over the past ten years was built on hype and false expectations...in short, snake oil.  There needs to be some shake out....

I do have to say, it wasn't all the fault of the software providers.  The industry, itself, morphed.  In the beginning no one truly understood what "IO" was all about.  The definition of "IO" became a giant umbrella of network design, constraint planning, optimized policies and/or replenishment.  Depending on the viewpoint of a specific industry, it could multiply into dozens of even more definitions.  This hyping and the lack of clarity to what it is and what it does could only go one direction:  Over the top hype...directly into a trough of disillusionment.

However, one thing about falling into a trough of disillusionment is beneficial: It forces the players to define what and who they are to survive.  In turn, it forces the entire space to draw back and define what will be supported.  Once that process is complete, the solution space goes through a strong revival...based on a "slope of enlightenment" and a "plateau of productivity." This can only occur when the industry defines what is expected.

At this juncture in our travels with inventory optimization, I will agree with Lora Cecere ... to a point.  I will toast the end of an over-hyped industry as we have known it!  I rejoice in the fact that, at long last, we can get rid of the unrestrained hype.  This is what happens as a natural progression in a solution space.  I look forward to a new form of stability.  I look forward with anticipation to a new dawn in inventory optimization!