Right-Sized Inventory

Posted by Paul Johnston on 04-Aug-2019 09:56:25

THE IMPORTANCE OF INVENTORY MANAGEMENT

This article explains the importance of Inventory management in achieving a high customer service level with the right inventory.

Inventory Management-2

In the modern supply chain, determining the balance at a given time of customer service level and right-sized inventory is an equation that many organisations struggle with. There are external but also internal factors to consider.

Internal Factors

Across the Supply Chain, product lifecycles are reducing, and SKU proliferation is increasing costs across manufacturing, distribution and procurement. Businesses devote time and resource to Forecasting, Supply Planning and Procurement but how is Inventory across their network optimised? Is it under control?

  • Procurement look to reduce costs but could increase lead-times by choosing an alternative vendor which in turn reduces the flexibility of manufacturing.
  • Manufacturing build large quantities to increase line efficiency but could miss customer due dates.
  • Distribution at the end of the chain can expedite with an alternative route to the customer but again increasing the cost.

Inventory is an asset and ties up working capital until it is sold and therefore we don’t want to over-stock through our Bill of Materials or network of locations.

External Factors

Today’s market is Volatile, Uncertain, Complex and Ambiguous (VUCA) which drives Forecast error and in turn creates an explosion of noise through the supply network. Product development and production lead-times have increased in recent years whereas Customer tolerance time has reduced leading businesses to rely on Inventory in the supply chain in order to maintain service., The key question is how much is required and where is best to position it.

Next steps

With so many drivers, Supply chain departments are fire-fighting demand and supply volatility on a regular basis. They are reacting rather than being pro-active and they need to consider placing inventory at strategic positions to buffer against this uncertainty.

Setting a company Inventory policy is critical to have better informed and timely manufacturing, procurement and distribution decisions. Achieving the balance can be explored with an Olivehorse Inventory Maturity Assessment shown in the diagram below; where analysis of your data, people and current processes drive your organisation to Best-In-Class.

OH Inventory Maturity Assessment Table-1

An Inventory roadmap will be built in combination with the business to achieve the goal of optimising your inventory by reviewing the data in your system, understanding your objectives, constraints and building your team’s capability.

For a free workshop to explore your business environment, please contact our Inventory Practice Lead: Paul.Johnston@Olivehorse.com, or complete the form below.

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