Too much inventory or not enough. It’s the eternal struggle at the heart of effective supply chain management, but it’s an equation organisations continually get wrong.
It’s a typical situation; the business doesn’t like the amount of inventory it holds, so an edict is issued to reduce it. Production stops until inventory is cut to an acceptable level, only to find, a few weeks later, customers are unhappy they can’t get hold of the products they want. So production restarts and runs flat out for the next few months to try and recover the supply position. The result? The organisation ends up with more inventory than it started with. However, when it comes to optimizing inventory, the choices go far beyond simply stopping production. Effective supply planning is the answer. By properly analyzing its decisions on service levels, cycle times, utilization of production capacity and safety stock, an organisation can create a list of options to ensure it is always carrying the right amount. Rather than wait for the next brave soul to just stop production until inventory runs dry and let history repeat itself, a paradigm shift is required.