Inventory Management in the Midst of Growing Supply Chain Complexity

Despite the lean manufacturing purists who preach that inventory represents waste, inventory does play an important strategic role in buffering against demand variations and potentially harmful supply disruptions. Therefore, the key challenge is selected the appropriate inventory management strategies and clearly understanding the cost and benefit implications to business performance.

The business climate has changed dramatically over the past 20 years, dramatically increasing the challenge in selecting appropriate inventory management strategies. Most manufacturers operate in a truly global market place with an unprecedented level of competition on price, availability, and performance. This factor has contributed to other changes including rapid new product development and shorter product life cycles. Combined, the level of demand volatility has never been higher and forecast accuracies of less than 60% are not uncommon.

Secondary to demand volatility, is the need to evaluate the risk of supply chain disruptions when considering inventory strategies. With the outsourcing movement still in full swing, the supply chain of most companies is more distributed and complex than at any point in history. Numerous industry surveys have validated that companies believe they have less visibility and control over their supply chain today than in past years. On top of this fundamental change, many companies have sought to introduce the concepts of just in time inventory and lean manufacturing to help reduce inventory liabilities while also eliminating other forms of waste. The net consequence has been an unparalleled degree of supply chain disruption risk.

The Right Tools Enable Effective Inventory Management

Understanding tradeoffs and their impact is critical to making appropriate inventory management decisions for your company. This requires supply chain visibility, modeling and simulation tools that are capable of emulating the demand and supply dynamics of your supply chain. Inventory management decisions are often made on an individual part or group of parts without understanding the actual flexibility it yields when considering all other parts and part relationships to the end product.

With Kinaxis™ RapidResponse™, inventory strategy alternatives can be modeled and then tested to determine both their cost and cumulative net effectiveness in addressing a variety of demand scenarios. In addition, RapidResponse provides inventory monitoring and alerting. Even when inventory targets have been established, companies often lack the visibility into the extended supply chain's actual inventory levels to make accurate predictions on the real demand flexibility and revenue benefits. Should a significant shift in demand or supply occur which puts the business plan at risk, RapidResponse alerts you so you can eliminate the business impact or mitigate it to the greatest extent possible.