Do you believe that inventory optimization is necessary for the operational and financial performance of the organization? What experience/s have you or your supply chain team had with inventory optimization initiatives and did they prove to be successful?
Sort By:
Oldest
Sr. Director of Supply Chain in Healthcare and Biotecha year ago
I am going to steal your phrase "inventory covers a multitude of sins" - SO TRUE
Founder & Supply Chain Expert, Oakmont Supply Solutions in Consumer Goodsa year ago
Please do - I have an awesome river/rocks image that I took from a leader many years ago that is also a great analogy!
Sr. Director of Supply Chain in Healthcare and Biotecha year ago
Inventory optimization and network planning have a massive impact on financial performance. No question here. Based on your cadence, you know how to support the sales team with the correct mix of product and quantity. In addition, it helps avoid back orders and can be an enabler and catalyst for high customer satisfaction. What worked for me was constant monitoring (Manual or Automated); if you have a Build to Stock business and if a big order drops in, you can risk falling below the safety stock levels or completely running out of product. I work in healthcare, and there are certain products we always need to keep on the shelf as they are deemed life saving devices.
Founder & Supply Chain Expert, Oakmont Supply Solutions in Consumer Goodsa year ago
Great comment - especially the part about Build to Stock inventory management. Good reminder that inventory optimization looks different depending on your IM strategy - make to order, make to stock, JIT etc.
Chief Operations Officer in Consumer Goodsa year ago
On a theoretical level a well-optimized inventory system can help businesses in several ways:Reduce Costs: Inventory carrying costs can be significant, including costs related to storage, handling, insurance, and potential depreciation. By optimizing inventory, a company can minimize these costs.
Improve Cash Flow: Money tied up in inventory is money that's not being used elsewhere in the business. An optimized inventory frees up cash for other business needs.
Enhance Customer Satisfaction: By ensuring the right products are available at the right time, inventory optimization can improve customer satisfaction and loyalty, leading to repeat business and referrals.
Increase Sales: Avoiding stockouts through inventory optimization means fewer missed sales opportunities.
On a more practical one:
- it's very important to keep track of sales "reasons" - without proper tracking of promotions it's ery difficult to manage demand properly (rotation varies and is not consistant)
- it's crucial to work both on rotation and aging of the products
- it's also beneficial to cut "long tail" for example "evertyhing over 180/365 days "must go"
Cofounder & Managing Director in Softwarea year ago
This is a very good question. Surely, inventory is a necessary function to mitigate risks (risk of stopping our manufacturing tools if no input, and risk of customers being not satisfied if no output). This mitigation has a cost. It blocks cashflow consuming space, carrying insurance and more. Hence, it impacts the financial performance of the organization negatively.However, it ensures having the right input at the right time for our manufacturing and the right output at the right time for our customers. Hence, it avoids scenarios that can have a severer financial impact on the organization.
I like the points of view of and oriented towards outbound inventory. I would like to humbly participate with Inbound inventory. Inbound is about getting are inputs manufactured, shipped and received. If done with a lean approach, inventory could be null. However, suppliers may encounter disruptions such as carriers and forwarders on trade lanes. Our inventories exist to ensure our manufacturing assets to run despite the upstream disruptions and exceptions.
This approach can be flipped with outbound with our own manufacturing disruptions and carriers/forwarders ones.
The question of optimizing (eliminating) inventories with a root cause approach is therefore how to reduce/eliminate the disruptions/exceptions along the value-chain from suppliers to customers?
Director of Supply Chain in Manufacturinga year ago
I found systematically cases with a high level of inventory with relative stability of total volume/value vs. all other dynamics of supply chain (demand, supply, capacity). When your stock levels are systematically stable on high level (DOI/Value), despite important SC dynamics it is very likely result of system/human influence combined with dysfunctional stock (plenty of missing things while overstocked parts exist). This equilibrium in chaos is always attention point hiding plenty of reasons for the dramatic stock existence out of functional needs (to buffer demand/supply variation and diminish impact of volatility for better service). Than the job of Inventory Optimization starts...
Inventory Optimization can be a huge advantage or any business that sells a material or finished good. If your business has a huge inventory overage (thus poor inventory health), you will not only see the working capital impacts on the balance sheet but also the harder to calculate inventory carrying cost surges.