According to a survey of companies across a broad spectrum of manufacturing, distribution, and retail by Industry Directions, traditional supply chain management practices make it a challenge to create a truly demand-driven supply and distribution network.
Most respondents to this study state that improving service levels is the primary driver to their inventory management strategy. Yet, most are still doing things in a relatively traditional fashion. They review processes and performance, inventory and service level targets infrequently. A majority have planning software, but not other applications that support dynamic, demand-driven response. Top performing companies in the study are more likely to use these practices and software.
Spreadsheets are the dominant method for setting both inventory targets and customer service targets. While many companies have developed excellent calculations in spreadsheets for managing targets, there are inherent limitations to spreadsheets and the classic deterministic inventory theory commonly used. One is that they become far more challenging to manage at a more detailed SKU-level and another is that they are single-user systems that limit truly dynamic collaboration.
Most respondents believe that application-based solutions are more effective than spreadsheets or rules of thumb. Inventory optimization software is growing in popularity, and many products provide mechanisms to optimize both inventory and service parameters on the efficient frontier and make tradeoffs for each SKU.
Inventory planning and optimization software that uses algorithms to account for uncertainty are recognized by over 30% of respondents as the most effective, with another 27% feeling than an application that includes an inventory target calculation would be the most effective mechanism.
For customer service levels, 30% believe an application with a calculation would be most effective and 23% believe an optimizing algorithm for the customer service level would be best. Still, fully 20% believe that an expert using rules of thumb is the most effective way to set customer service levels, and another 27% selected spreadsheets. Some companies may be very effective with these mechanisms, but we suspect many respondents are not acquainted with application-based opportunities to improve customer service and inventory targets.
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