Managing inventory in 2019 has become an even more complex challenge according to our industry peers and PINC customers. In my previous article titled “The High Cost of The One Percent Inventory Accuracy in Your Supply Chain“, I explored significant challenges, costs associated to inventory management, and what one percent of inventory accuracy represents to your operation. In a recent podcast, an industry professional described how to better manage inventory in today’s dynamic business environment effectively. Here’s what I heard….
Your customers want their shipments delivered in a day or less. Your suppliers expect you to stock up to meet those demands without their help. And your CFO is wondering why in the world inventory levels—and their associated costs—have been going through the roof lately. If this describes your current operational environment, you’re not alone. Total business inventory levels climbed to pre-recession levels between 2010 and 2018.
When presented with this data, one supply chain leader questioned how her company could be investing 1.7% of its total revenue on technology, but still not be able to improve its inventory management processes.
5 Reasons Why Your Inventory Levels Are Too High
Holding excess inventory may seem a logical solution to today’s fast-paced fulfillment environment. Customers are placing smaller orders and wanting them within a day (or less). Meeting these demands without having to over-stock requires a constant balancing act: lower inventory costs, guarantee delivery capability and maintain high levels of customer service.
These are the five things holding companies back from achieving this balance, and how organizations can do a better job:
- Inventory in transit: Unfortunately, companies have implemented technologies to maximize the opportunity for safety stock (i.e., “buffer” inventory) and they repeatedly invest in the solutions needed to minimize safety stock. The biggest opportunity for most companies lies in the management of inventory, and the important opportunity that’s still out there is cycle stock (or the portion of inventory available to meet normal demand during any given period).
- The growing complexities of forecasting and scheduling: When you use cycle stock strategies to group products together and align production schedules, you can start to benefit from more tactical supply chain planning. However, those companies haven’t connected distribution requirement planning, finite scheduling, and the implementation of transportation against their tactical plans.
- Too much emphasis on safety stock: Looking specifically at forecast errors, the blog says companies must take the form and function of their inventories (i.e., raw materials, semi-finished goods, finished goods) into consideration. Figure out exactly where that inventory should be held in the global supply chain, and then make conscious choices about it.
- Leaders who don’t understand inventory management and processes: The biggest issue is that management doesn’t understand inventory. Some of them view inventory as a big “slop bucket” that they can put their hands into and they can pull out cost savings for the quarter. The problem is that it doesn’t work that way.
- Poor inventory choices: Calling inventory the “most important buffer” in the supply chain, managers need to ask whether holding stock is a good or a bad thing in today’s dynamic business environment. In most cases the answer is “a good thing,” but it must be the right inventory.
When you couple these critical factors with the labor shortage, warehouse vacancy rates and the impact of tariff policy, managing inventory effectively will become an even more challenging activity in 2019 and beyond for everyone in the supply chain industry.
The Right Technology
Having access to accurate inventory information and location in almost real-time is, in my opinion, a challenge that can only be solved by technology. As I mentioned in my last article, that’s precisely why digital inventory solutions are becoming so popular. These robotics solutions might not solve all the problems associated with inventory management. However, they allow companies, large and small, to apply autonomous drone technology and robotics, coupled with computer vision technology, artificial intelligence, RFID sensors, and cloud computing to improve accuracy significantly.
Besides gaining an edge in understanding inventory levels and being able to move inventory faster throughout the supply chain, these companies are also creating safer working environments, redirecting their staff to handle high value activities and empowering their teams with rich information, which can then be revisited at any point and time and can be used to make better decisions.
I can guarantee you that the day when “robots take over the universe” isn’t coming anytime soon, but the idea of humans and robots working side by side is already coming to fruition in factories and on warehouse floors worldwide creating a true Bionic Supply Chain.
Matt Yearling is CEO of PINC Solutions. He joined PINC as chief executive officer in March 2013 and is responsible for the overall strategic and operational management of the company. Matt’s past roles include vice president and general manager of Encryption Products at Symantec Corporation, senior vice president of Global CRM Product Development at Sage Inc., Chief Technology Officer for Embarcadero Systems Corp (a Ports America company). As vice president of Oracle On Demand, Matt played a pivotal role in making it Oracle’s fastest growing line-of-business.