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Lora Cecere's picture
Shifts in Focus on Inventory Optimization

The traditional focus of inventory management has been on inventory levels with a focus on safety stock. This has had diminishing returns. As network design technologies mature, there is an overlap with multi-tier inventory optmization technologies and network design software. There is also a shift from a sole focus on inventory levels to a focus on form and function of inventory within the network. This includes the design of the network for placement. The key question is "Where should inventory be placed, and what is the optimal form and function of inventory in network design?" 

  • Form: Raw materials, semi-finished goods, finished goods
  • Function: Cycle stocks, safety stocks, seasonal inventories, promotional inventory, intransit inventories, and minimizing slow and obsolete inventory.
  • Placement: In the network at a supplier, intransit inventory on a mode of transportation, inventory in your distribution center, inventory in the channel or inventory at a third-party logistics network. 

I think that the biggest opportunity lies in the management of cycle stock and the design of inventory strategies in the network. I think that the singular focus on inventory levels and safety stock is outdates. What do you think?

Simon Eagle's picture
Inventory optimisation

Agree entirely Lora. Inventory is but one of the 3 variability buffers - the others being queue time and capacity so if there's to be any form of optimisation it should be of them all - not just inventory - because they all create cost in one form or another.  But, in fact, the whole idea of optimisation is misleading. Buffers are caused by variability so SCM leaders should be focussing on simply minimising it. The biggest step forward is to eliminate the forecast error induced variability that is generated by a forecast push MRP/APS replenishment process - not by trying to improve forecast accuracy (marginal gains at enormous cost via technology) - but by adopting Demand Driven. And on the supply side focus on Lean - TQM, TPM, Standard Work, 5S, SMED, Batch Size reduction etc.......all activities that "minimise the cost of buffering variability" (Factory Physics definition of Lean)

 

 

 

 

Stephen Foster's picture
I would love to see an

I would love to see an updated chart for the last year. Another interesting bit of information would be to see how little changes matter- like UPS only taking right turns.

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