The pressure is on for companies to revamp traditional inventory management practices with technology and processes that are better suited to today's global, multi-echelon supply chains. In a recent survey by Aberdeen Group, Boston, more than two-thirds of respondents said they have been asked in the past six months to provide recommendations on how their company can improve inventory management technology; 83 percent have been asked to recommend process improvements.
While the majority of the 160 companies surveyed cite cost-reduction as the primary goal of better inventory management, 27 percent are looking to use inventory as a means of gaining market share, through superior service and market availability.
Instead of trimming inventories across the board to reduce cost, these best-in-class companies segment their customer channels and products and then optimally position supply when and where it is most needed and most profitable, he says. Through this approach, they are able to increase their overall customer service levels while also reducing total inventory costs, which leads to improvement in other key metrics like customer retention, gross margin and inventory turns.
Aberdeen defines best-in-class companies as those that have achieved customer service levels of 96 percent or better, while at the same time reducing inventory carrying costs. Just over 11 percent of respondents were in this category. About 55 percent of these were distribution intensive companies and 45 percent were manufacturing intensive. Roughly 38 percent were large enterprises, with the rest being mid-sized.
Best-in-class companies have a number of differentiating characteristics. They are about twice as likely as their competitors to:
1. use network design technology to support business growth and outsourcing decisions;
2. use multi-echelon inventory optimization technology;
3. have an existing supply chain visibility system;
4. have a forecasting system that supports customer-level forecasts;
5. use cross-functional product teams; and
6. update their inventory policies multiple times a year.
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