Seven Challenges of Inventory Management
Seven Challenges of Inventory Management
Seven Challenges of Inventory Management
The article highlights the top 7 challenges that are critical but not obvious,
to retain a balanced inventory in the supply chain, preventing unproductive
working capital and lost sales opportunities.
The parameters that are used for managing inventory - such as safety
stock quantity, replenishment order quantity, reorder point in a Continuous
Review policy, or review period in a Periodic Review policy - use factors such as
service levels, demands, and supplier replenishment lead times as inputs for
their calculation. However rapidly changing markets, competitors, and product life
cycles have made review periods that worked in calmer times unsuitable for
today’s speed of business execution. Failure to monitor the environment and
update these inputs on a frequent and detailed basis is a recipe for inefficient
inventory investment.
2. Days of Supply
Many inventory managers concede that by taking this approach, they may
be giving up inventory reduction (and cost saving) opportunities in order to
'guarantee' availability. However, this approach isn’t completely suitable to
determine an efficient supply quantity. This approach fails in three areas: first, it
does not take into account the daily, seasonal, and lifecycle variations in demand
that may be inherent for each SKU; second, it does not take into account
variations in supplier replenishment lead time; and third, it does not seek a cost-
efficient balance between inventory held as safety stock and inventory being
replenished (cycle stock).
4. Top-down Forecasting
Summary
Over the last decade our supply chain practice at IBM Global Services has
conducted well over 200 supply chain transformation engagements that focused
on improving the effectiveness and efficiency of our clients’ inventories, finished
goods, raw materials, and work in process.