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The Case of Inventory Management in Supply Chain and Why it is Important

April 10, 2017

I have always looked at supply chain as a series of activities starting from  forecasting, and all the way through customer order release & execution, procurement, inventory management, performance management, and finally through to warehousing and distribution to end customer

 

Inventory in the chain can be seen as both a positive and a negative — as an economic asset towards hedging or even looked upon as capital being tied up due to slow moving high inventory holdings.

 

However, it is only when we look towards lean supply chains coming from efficiencies in purchasing, manufacturing, sales, and shipping does the whole picture of maintaining optimal inventory holdings become clear. It is here we see how effective inventory management is essential to supply chain competitiveness.

 

In fact, Inventory management should be seen as a cornerstone to remove a lot of the ‘noise’ and ‘sluggishness’ in attaining a lean supply chain. A multi-pronged

effort can be undertaken by the following areas below to address all aspects that give rise to increased inventory levels in raw materials, work in process or even finished goods.

 

Forecasts and the S&OP Process. There is no denying forecasts that did not materialize are a cause of high inventory be it in raw materials or in finished goods. Accurate demand forecasting has the highest potential savings in any area of inventory management.   For this, we should have systematic review of current demand planning and supply management processes and policies. Assessments should be made to identify gaps between current operations and best practices and define solutions to address them. Good coordination between demand management and supply planning are very important to address these issues especially when forecasts are not materializing.

 

Supply Planning should go heavy on Backward Scheduling to Demand and the use MRP concepts. While most automated order release systems already comprehend this, it is good for all planners to understand the mechanics.

Procurement. In today’s highly globalized economy, the procurement function has to at the very minimum ensure the following:

  1. An efficient monitoring and follow-up of all procurement activities.

  2. Cost efficiencies in all procurement and purchasing activities.

  3.  Well managed contract manufacturers and other outsource activities.

  4. Timely purchase of adequate quantities of assured quality materials.

 

Operations. Applying various lean methodologies in the operations floor like Kaizen, Kanban, and JIT etc.  and other lean concepts promote overall effective inventory management. Moreover, they improve cycle time which leads to lesser work in process inventories.

 

Warehousing. Due to the growth of global supply chain and longer lead times, warehousing plays a very important role in managing inventory. Warehouse managers need to have a good understanding of incoming flows. At the same time, they must be able to introduce lean concepts to support outbound demand. Focus areas that we can introduce lean concepts include Customer Focus, Inventory visibility, Product Flow, teamwork and Continuous Improvements.

 

Driving the focus in all these key areas with lots collaboration and teamwork will make the supply chain leaner and easier to manage the inventories across the entire chain.It will be easier to remove many buildups or clear bottlenecks along the way.

 

Finally, an effective cycle count schedule and periodic inventory audits will ensure accuracy and accountability.

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