08 Dec 2020
Many organisations do not realize that inventory is a direct result of choices that are made – or not made – consciously or unconsciously. Reliable inventory levels can easily be influenced by a variety of factors including variation in demand and supply, data accuracy (especially inventory records), the performance of the individual supply points, the supply strategy (where we meet our customers), and the network set up.
To take control of inventory, businesses must use a holistic approach – engaging everyone responsible for influencing areas, including:
I advise my clients to project their planned inventory level 36 months out. It is important that they measure their inventory projection capability to determine whether they are meeting or missing the projection. This allows them to understand the root-causes behind either outcome and direct the improvement activities to the key causes.
Businesses should also beware of bias and the impact onto not only inventory build but onto effective customer service and ultimately the business. Inventory for customer service levels is based on demand and supply variation, assuming normal distribution of the variation, as shown below.
If a business is biased, the curve is shifted which means we will never have the right products at the right quantity and place in the supply chain, as shown below. Achieving customer service is at an excessive additional cost and provides unnecessary stress within an organization.
Top tip: Put inventory management back on the agenda but as a tool to differentiate the way you run your end-to-end supply chain.
Here are 5 questions for you to think about:
For more resources on inventory management visit the white papers section of our website, or if you have any specific questions please email [email protected].
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