Inventory management as part of a supply chain network

by Kristina Pelzel

Inventory management is not just an isolated subtask with only demand management or purchase departments carrying responsibility for it. In times of a fluctuating customer demand and high expectations regarding availability, individualization and quality, efficient performance of the entire supply chain becomes a central objective. To achieve it, all other areas, such as distribution, production and management, must be integrated into the stock planning and procurement. Such integration is decisive in order to avoid the potential conflict arising whenever these departments try to achieve their individual goals irrespective of their interdependence. While the procurement department, for example, strives to guarantee a high material availability without accumulating excessive inventory, the main interest of production is to use available resources in the best way possible. In the meantime, distribution wants to bring the products to the market using the most effective sales channels. Management and sales departments, all the while, hope to achieve an optimum service level with the help of a reliable sales plan to maintain a high level of customer satisfaction. And on top of everything, the executive board calls for the reduction of stocks in order to enable the release of the tied-up capital. In order to achieve an economically viable balance of all these individual interests, the entire internal supply chain needs to be integrated.  

To succeed in this, you need to focus on three things:

1)      Combining information and using it properly

The solution for this is a cross-departmental planning system, which does not only offer a variety of possibilities for the collection of information, but also takes into account the specific requirements of each individual department. The synchronization of the data from the supply chain, in this respect, would help to clarify the interdependencies between the departments and eliminate media disruptions.

By connecting experts from different departments, an integrated planning system allows for the pooling of knowledge, which can be applied later during the planning process - just when it is most needed, i.e. at the aggregate level. Valuable information for planning is not only associated with items or customers. For example, if information about certain developments for a particular region is available (e.g., a 20% sales decrease in England), the planning process first embeds this information in the system where it is visible for everyone. Based on this information, an intelligent planning system than calculates its effects on the sales for each item in this region.

In wholesale trade, there is a great variety of market information: seasonal sales, trends, sporadic demand and much more. Given the fast-growing industry-wide product spectrum and the high degree of individualization, it seems virtually impossible to look at each of these developments by hand and consider them all in a planning process. A system that contains an assortment of forecast procedures and parameters for every possible sales pattern can accurately predict future developments and demand. The more precise the forecast, the more accurate the future demand coverage will be.

 2)      Establishing common goals

A functional, holistic supply chain requires not only a common database, but also a consistent operation mode when trying to reach the company’s overall objectives. Different, and at times opposing, incentives in each department pose an obstacle, especially when it comes to monetary incentives. For instance, the achievements of the purchase department are measured by negotiated supplier discounts, e.g. for bulk orders. The planning department, however, is urged to keep the stock figures low. Not only conflicts, but also uneconomical actions seem to be preprogrammed in such a case. Therefore, in order to achieve an overall optimum, contradicting subordinate aims must be dismissed and a new common goal should be established. For the inventory management, this means: Inventory optimization for all items and for the entire network.

3)      The right visualization

To ensure the efficiency of the mutual effort, it is advisable to let go of outdated tools, such as Excel or Access solutions, and focus on visualization instead. We all know that the saying “A picture is worth a thousand words” is not just a nugget of wisdom. The human brain analyses pictures faster and with far better quality than it can do with a row of numbers. Hence, this knowledge should also be integrated in the planning processes: Charts displaying data about historic and forecasted receipts and sales support prompt a sound decision-making a whole lot better than a confusing data table.

How well are the processes already integrated in your internal supply chain?



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About the author

  • Kristina Pelzel

    I´m a procurement and inventory optimization problem solver. With over 18 years of experience in the intelligent decision making software industry, my passion is to consult interested parties throughout the entire sales process.

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