Inventory Planning/ Optimization

Chapter 1: Inventory Optimization Strategy Design and Continuous Enhancement

APQC’s consortium best-practice study and report, Inventory Optimization: Balancing the Asset versus Service Tradeoff, discusses how leading organizations deal with the conflicting pressures to reduce inventory investments, become more cost effective, and provide top-notch customer service at the same time.

The study focused on:

1.  designing an inventory optimization strategy and establishing a continuous strategy enhancement process,
2.  implementing inventory processes and procedures,
3.  using technology as an enabler of inventory optimization, and
4.  measuring the success of the strategy and providing for continuous improvement.

The first chapter in this report focuses on Inventory Optimization Strategy Design and Continuous Enhancement. It examines the key findings of how the best-practice partners in this study design and continuously enhance their inventory optimization strategies to minimize inventory investment and improve customer service. It looks at how best-practice partners determine the needs and objectives of each process area and how each integrates cross-functionally as well as with suppliers and customers. It describes how collaborative demand and supply information is shared between supply chain partners and how the information is used to optimize the global network and reach the best balance between inventory levels and customer service.

The four findings for this chapter follow.

1.   A new inventory optimization effort must be defined, supported, and enforced by senior management, since the effort will touch all aspects of how an organization does business.
2.   A key component of inventory optimization is a periodic evaluation of the supply chain design to address any operational or financial inefficiencies of the physical network and to ensure sufficient strategic capacity to support business requirements.
3.   Since improvement of customer service is a primary objective of inventory optimization, it is imperative that service levels are maintained or improved during the process of transformation to ensure buy-in of stakeholders and momentum for the initiative.
4.   Inventory optimization must entail a significant change in replenishment speed and efficiency achieved through deliberate partnerships with internal and external suppliers.

To learn more about best practices in Inventory Optimization Strategy Design and Continuous Enhancement, read this entire chapter from APQC.