As logistics and supply chain managers get down to work in the coming year, they should keep an eye on developments in the supply chain software world. In particular, they should stay on top of what's happening with three specific types of software, as wider use of these applications could affect the way they run their DCs in the next 12 months and beyond. These applications are as follows:

Inventory optimization. Each year as part of its annual "Outlook" survey, DC Velocity asks readers what types of software they plan to buy in the coming year. This year, inventory optimization systems came in third on the list (cited by 16 percent of the respondents), right behind transportation management systems (17 percent) and not all that far behind the top choice, warehouse management software (25 percent).

That's no surprise. As more companies look to free up working capital by eliminating excess inventory, they're realizing the value of inventory optimization. Today's systems offer highly sophisticated analytical capabilities. So-called multi-echelon applications can look across all locations in the supply chain—both factories and distribution centers (DCs)—and calculate inventory needs throughout the entire network, helping users determine how much stock to hold at the factory, at the regional DCs, and at the central DC. Broader deployment of these solutions could result in less stock being held in some DCs and a different product mix in others.

Network design. In the past, companies typically turned to network design software when they wanted to solve a specific problem. But today, more companies are starting to view network design as an ongoing process. As the business climate becomes increasingly volatile, they're re-evaluating their networks on a regular basis to determine whether they have the right locations to meet the dual objectives of serving their customers while keeping transportation costs low.

For distribution managers, network design tools are a mixed blessing. Although a network analysis might validate the use of a location, it could just as well recommend shutting down a DC or relocating the facility. Long-term stability of DC locations in the supply chain network could become a thing of the past.

Demand planning. More companies are coming to the realization that the best way to avoid excess inventory is to adopt a demand-driven supply chain strategy. Instead of making products to a forecast and pushing them on consumers, the manufacturer uses information from the retailer on what's selling as the basis for production and replenishment decisions. The ideal data come from sales transactions at the cash register, although drawdowns in inventory levels at the store or the retailer's distribution center can be used as the demand signal. No matter the information source, the data have to be interpreted, and a number of vendors have developed special software that schedules replenishment shipments based on demand signals.

As supply chains become more demand-driven, distribution managers can expect to see changes in their DC operations. By definition, a demand-driven supply chain dictates that the distribution center pick and ship stock in response to sales activity. That could necessitate higher throughput and more frequent replenishment delivery runs. Another likely change would be the need to build more "rainbow" pallets, which contain an assortment of items rather than a single type of product. Shipping mixed-case pallets allows the company to keep a variety of items in stock at the store. However, building rainbow pallets requires more work on the part of the DC.

As with any technology, it's hard to predict how quickly these applications will catch on with shippers. But the potential for big change is there. These systems could someday become as common in DC operations as warehouse management and transportation management systems are today.