Executive Briefings

Holistic Approach Needed to Deal with Inventory's 'Multiple Personalities'

How much inventory and which items should a company hold, overall and at each stocking location (each DC, store, stockroom, salesperson's vehicle, service depot, etc.)? When to replenish and how many? To the uninitiated, these seem like relatively straightforward daily decisions. But they are anything but simple and can make the difference between a highly profitable vs. out-of-business company.

Over the years, sophisticated formulae and algorithms have been developed to calculate and make inventory decisions. These are great tools and tremendous improvements over past methods. But algorithms alone are not enough. There are many forces and factors beyond what those tools can encompass. What is needed is a holistic approach that incorporates the full breadth of inventory's "multiple personalities."

However, in most companies, there is a tug-of-war among the different forces and functions and third parties that have a role in decisions and execution regarding what inventory to carry where. Each has a different perspective. A classic example is sales chronically over-forecasting (because they are rewarded for revenue, not forecast accuracy) and then manufacturing creating their own forecast, because they never trust the sales forecast.

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Keywords:  inventory management, inventory control, supply chain management, supply chain solutions, supply chain systems, forecasting vs. inventory

Over the years, sophisticated formulae and algorithms have been developed to calculate and make inventory decisions. These are great tools and tremendous improvements over past methods. But algorithms alone are not enough. There are many forces and factors beyond what those tools can encompass. What is needed is a holistic approach that incorporates the full breadth of inventory's "multiple personalities."

However, in most companies, there is a tug-of-war among the different forces and functions and third parties that have a role in decisions and execution regarding what inventory to carry where. Each has a different perspective. A classic example is sales chronically over-forecasting (because they are rewarded for revenue, not forecast accuracy) and then manufacturing creating their own forecast, because they never trust the sales forecast.

Read Full Article


Keywords:  inventory management, inventory control, supply chain management, supply chain solutions, supply chain systems, forecasting vs. inventory