Adopting a Holistic View of Inventory Management Can Provide Strategic Advantage
Optimizing inventory management procedures has always been a major challenge as part of shaping the supply chain. A number of factors can impact negatively upon the possibilities for gaining a strategic advantage via inventory management, including market volatility and the availability of functional silos. Therefore, it’s good to see that companies are now taking note of just how important the form and function of the inventory is, where in the past, they may have been tempted to write it off by applying targets for optimal stock safety. It is common that companies will say they have too much inventory on their books and seek to reduce inventory as their sole optimization strategy. The more prudent approach, however, is finding a suitable amount of inventory, because there may be cases where extra inventory is required to achieve the desired levels of customer satisfaction.
Before there is even a draft strategy, companies must first decipher which are the important aspects of the inventory they need to target, and direct their questions accordingly. Questions to establish; customer behavior, the suitability of current and prospective distribution networks, the correct lot sizes and ordering frequencies, how much and what type of stock to store, target service levels, the impact of seasonal demand and promotional activities, how to bring down supplier lead times must be asked, as well as examining the extra pressures to expedite due to poor service provision and establishing the what, where, when and why of lost sales.
There are a few types of inventory, each with their own unique set of challenges. It is therefore important to adopt a holistic standpoint when drafting the inventory strategy. For example:
• Safety stock can protect your business from supply and demand uncertainty and variability.
• Separating cycle stock can help account for varying shipment or batch sizes, maintaining minimum quantities for orders and also making provisions for stock production or replenishment, and lead times.
• Pre build and promotional inventory is a provision for times of insufficient stock levels, which may be due to extra promotions or seasonal demands.
• There are other types of inventory that are both common and significant, such as inventory that is in transit, pipeline inventory, and work-in-progress (WIP) inventory. These must also be part of the holistic view your company should take in order to squeeze the most put of inventory and gain a strategic advantage.
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