Guest Commentary: Inventory–Not What It Used To Be

Remember when inventory was just something off the production line stored in a warehouse until it was pushed out to customers? In the past, companies worried about how much safety stock to keep, along with inventory turn rates and the associated carrying costs, but the most important thing was keeping production lines running, driving the most efficiency one could from the machines.

Fast forward to today, and those production lines are likely halfway around the world. The machines belong to third parties. The whole idea of inventory storage is being replaced with processes and technology to direct and speed inventory flow. Warehouses are being converted to cross-dock, mixing center and flow-through facilities. And most are challenged with direct-to-store and direct-to-consumer distribution as well.

Storage is out, and flow is in, from anywhere in the world to anywhere in the world. Life is a whole lot more complicated for supply chain professionals.

What does all this mean? For one, concerns about safety stock, turn rates, and carrying costs are taking a back seat to agility needs, and meeting ever-changing customer demand. That’s not easy when it takes 22 days just for an order to sail to the U.S. from China. After decades of buying technology to reduce safety stock and carrying costs, we have more of it than ever, spread across much longer supply chains.

Business today has to react more quickly to demand, despite longer supply chains. There’s also more competition and price pressure, so whatever anyone does to make it happen has to drive out costs.

The answer isn’t simple, but certain basic things have to happen. To start, we need to recognize that flow and silos will never work together. Most people know this, but change is often difficult to realize since performance metrics and reward systems are still based on those silos. Optimizing one part of a business might de-optimize another. Supporting flow requires a strong leader who can change the metrics and reward systems to foster cross-functional processes that obliterate the silo mentality.

Technology has to support flow as well. Industry platforms have to facilitate flow across each trading network. Retail platforms, consumer goods platforms, high tech platforms – flows are different for each industry. These platforms need underlying technology based on services-oriented architectures and Web services to support network-wide visibility and the ability to quickly adjust mid-stream to meet customer needs. The good news is these systems exist.

No, inventory isn’t what it used to be. And neither are the organizational structures, processes and technology needed to support the new flow paradigm. But we have no choice and it’s going to be a lot of fun getting there anyway. So let’s go do it.

Jim LeTart has over 30 years of sales and marketing experience in the systems technology field. He has spoken at numerous national and regional trade events and his work has been published in many industry publications. For the past 11+ years Jim has been Director of Marketing for RedPrairie, where he has responsibility for industry marketing, analyst relations and association partnerships. Jim has an Industrial Engineering degree from Marquette University and an MBA from the University of Michigan.

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