There have always been potential and actual conflicts between the demand that a specific inventory was planned to serve versus other demands when they actually occur. These include:
• Replenishing out-of-stock stores from distribution centers versus serving all stores at least to a minimal extent
• Shipping to infrequent customers versus holding product for expected orders from more consistent customers
• Selling spare parts versus holding them for assembly into finished goods
• Shipping e-commerce orders from store inventory versus holding store inventory awaiting retail customer sales
Now there are increasingly more competing customer demands on each inventory.
All inventory is “owned” by the enterprise, regardless of the organizational structure. To maximize competitiveness, as well as financial and customer service performance, it should be considered equally available for sale to any customer when needed except insofar as:
Sunk costs incurred for delivery of the product to and storage in its current location
Costs that would be incurred for delivery to the needed location
The time required for delivery to the needed location
The time required for replenishment
• Contractual obligations with customers to establish segregated inventory
Transfer demand and demand for internal consumption, of necessity, must carry lower priorities. The solution is not mere protectionist-driven allocation, which reduces financial and customer service performance. Rather, the solution is a combination of:
• Decision-making rules for potential situations and circumstances developed collaboratively ahead of time based on corporate objectives and customers, or at least market channels, taking into account: demand forecasts, on-hand balances and safety stock levels, replenishment lead times, sunk distribution center and inbound transportation costs, outbound distribution and transportation costs, and required customer response times.
• Increased forecast frequency
• Agile operational flexibility
• Communications with customers, where possible, regarding expected demand profiles versus gross period totals
Solid forecasting, demand planning, inventory management and lead-time management processes are fundamental, but they will not address this issue in and of themselves. In order to develop consensus on effective rules or guidelines each of these areas must be thoroughly understood, as well as the demand and supply dynamics for each inventory.
The most competitive companies have collaboratively developed, multifaceted decision-making processes that are worked out ahead of time and can automatically and quickly respond to competing demands in concert with management objectives. As firms gain experience with order management issues, more maturity will come to the nuances of the availability and cost and time factors, allowing decision-making to become more subtle and powerful.
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