Inventory optimization has been a key area of focus and challenge for companies developing their supply chain. Several obstacles present themselves in this process; working in functional silos, demand volatility, supplier volatility, and difficulty accurately forecasting and planning to compensate for such factors. As a result there has been a substantial trend to adopt new strategies of inventory reduction and minimization which often detract from the real issue that hinges upon meeting customer service levels. Customer service levels are just as important, if not more important, than cutting inventory costs and yet often suffer unnecessarily under a paradigm fixated on reducing costs.
In order to address this issue there are several ‘Right Inventory Questions’ that have been highlighted by Vikram Srinivasan on Talking Logistics. These include:
1. What are the buying behaviors of my customers?
2. Do I have the right distribution network (for example, centralized stocking strategies for my slow movers)?
3. Do I have the right ordering frequencies and lot sizes?
4. Where, in what form, and how much to stock?
5. What are my target service levels?
6. How do I handle seasonal demand/promotions?
7. How much am I currently expediting due to poor service levels?
8. What are my lost sales?
9. How can I reduce supplier lead times?
These questions, along with many others can help companies find the constraints in their supply chain and help combat the tendency to adopt new inventory models in favor of finding the right tools for their specific business. Often when compiling the data and analytics to determine which systems and tools ought to be implemented, companies fail to capture true customer buying behavior by assuming normality, not understanding the driving factor behind trends, and making assumptions unnecessarily that lead to incorrect conclusions. Modeling technology that enables end-to-end views of inventory levels and policies can be utilized to design the right inventory strategy for weekly and monthly warehousing and ordering policies. Simulation of the recommended inventory policies from optimization analysis run by these modeling technologies can help validate operational feasibility and give greater visibility into supply chain performance/KPIs. When it comes to inventory optimization it’s important to avoid riding the trends of new systems and technologies and to ensure that each facet of the system is fine-tuned specifically to that segment of the inventory and the customer it is for. Digging deeper into each segment and asking direct questions, like those listed above, help identify which areas ought to be utilizing a different inventory optimization strategy.