Inventory Planning/ Optimization

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 second chapter in the report focuses on the implementation of inventory processes and procedures. It identifies the key findings related to how the best-practice organizations in this study define and implement inventory procedures based on supply chain capabilities and goals. It examines how best-practice organizations determine appropriate procedural steps and relationships to manage efficient and integrated inventory practices, including realigning roles, responsibilities, and accountabilities, both internally and in supplier organizations.

The two findings for this chapter follow.

1.         Inventory optimization must be supported by a well-defined order fulfillment process, where process mapping identifies critical performance gaps for strategy definition and assignment of process ownership drives accountability and focus.
2.         Supplier processes need to be streamlined for efficiencies and integrated with internal processes to achieve common business goals.

Throughout the study, the common theme to success was in processes that enabled good execution of the strategy. Process mapping allowed best-practice partners to target areas for improvement and establish standardized cross-functional processes with common goals among process owners. Within the processes, best-practice partners established sales and operations planning and forecasting schedules and maintained purchasing levels and policies to allow for best planning opportunities and, therefore, best inventory optimization results. The standard processes were set up to be monitored through performance measurement, which established accountability and focus on continuous improvement.

To optimize supply chain performance to achieve lower inventory levels while maintaining or improving customer service levels, best-practice organizations found that they could not just focus internally. The best-practice organizations set up various programs with their supply chain partners to help their suppliers to streamline their processes and integrate them with the company's own processes and goals.

To learn more about best practices in Implementation of Inventory Processes and Procedures, read this entire chapter from APQC.