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6 Keys to Inventory Optimisation

Many companies around the world have adopted inventory optimisation and those without a formal process are falling behind their competition. Effective companies must factor in the global nature of their business when thinking about reducing inventory. Here we discusses the six factors that can lead to Inventory Optimisation success and place you ahead of your competitors.

Factor One: Air Cover

‘Air cover’ for a supply chain professional means solid support at the executive level. Even a senior staffer needs the backing of peers in supply-side procurement, manufacturing, distribution, sales and marketing, finance, and even strategic planning.

Stakeholders in the supply chain come from diverse, often isolated, functions, ranging from purchasing to 3PL’s, from sales to inventory planners, and so on. The organisation that succeeds is the one that realizes it has much more to gain by generating a shared understanding (vision) of the shared supply chain. Making inventory-related key performance indicators (KPIs) visible, comparable and available amongst all business units will create a sense of internal competition and achievement.

Factor Two: Inventory Optimisation Must Match Your Organisation’s Planning Process

Your organisation has a planning process which dictates how you’ll go about the job of gaining support and successfully implementing your inventory optimisation initiative. As Gartner notes, it operates on three levels: strategic, tactical and executional.

Supply chain strategy (inventory plans and policies), tactics (individual inventory target setting down to the SKU level), and execution (ERP) are like separate gears that mesh together to perform the work of managing your inventory wisely. They should be thought of as three facets of a single entity—strategic course setters take the long view, while those who care about day-to-day decisions need a dedicated, easily adopted mechanism for maintaining inventory and service at optimal levels.

Factor Three: Avoid the Black Box

Most inventory target planners will not use a solution unless and until they believe in it. It’s simply not possible to put a ‘black box’ into the supply chain organisation and expect everyone to follow its lead. Basically there is no substitute for—or shortcut around—using the knowledge of planners who are ‘in the trenches’ on a day–to-day basis. These planners must have at least a basic understanding of the data that goes into the process and accept the results that come out. When planners are comfortable with the results of optimisation recommendations—if they take ownership of the numbers—they become confident and will not revert back to old static and simplistic methods.

If you have real time inventory data, you also unlock the tools to accurately forecast inventory and sales performance. Businesses increasingly recognise the value of data because the more data they have, the more competitive they can be in an increasingly saturated market.

Factor Four: Move Fast!

Every supply chain is characterized by an ‘efficient frontier’ curve, which represents the trade-off between inventory cost and service level performance. You are in the process of moving your entire supply chain from one frontier curve to a new ‘efficient frontier’ that achieves higher performance at lower cost. The most important factor in reaching this new level is to organize and mobilize your key resources quickly. Long, multi-year rollouts are vulnerable to shifts in focus and budget. You may lose key resources. And of course, there is always the impact of stakeholders changing jobs. So ‘optimise your optimisation initiative’.

Factor Five: Avoid the ‘One System Fallacy’

No matter what stage of an ERP implementation you are in, the truth is that multiple systems still run most businesses. As an example, companies implementing in emerging markets like Brazil, India and Russia face diverse business and supply chain networks: their distribution channels could be vast and numerous; the data may not be available uniformly across all entities; coverage in the ERP/APS may not be adequate. All these realities necessitate a built-in flexibility regarding the configuration, implementation and setup of the inventory system.

Factor Six: Identify your Key Performance Indicators (KPIs)

Warehouse management is well on its way to embracing modern technology, and that includes effective data management and analytics capabilities. To measure performance effectively, you need clearly defined objectives or KPIs. Reducing shipment errors or cutting costs, for example, might be priorities going into 2016. But first, you must establish a baseline and define clear goals that you can measure against.



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