As a Phd in inventory optimization, I’ve started my supply chain career in adjusting inventory parameters with surgical precision. I was, and I still am passionate about applying statistics and advanced analytics to the supply chain domain. I’m still training supply chain experts on how to do this. I’m still involved in research where we redefine the boundaries of what science can do for you. Though I still believe that science can help, my biggest mistake was the assumption that it would be enough to change the game.
With a master mathematics, 5 years of experience in IT and an ongoing MBA, I arrived in the supply chain domain 13 years ago. I immediately felt at home in the more statistical and algorithmic part of supply chain planning. Calculating inventory parameters, using Linear Programming to optimize planning. All of this stuff was new and exciting. I finally understood that some of that math could be applied to real life stuff!
Little did I know at that time, that the surgical precision with which we were changing inventory parameters, was soon to be hit by a tsunami of constraints and influences that were going to annihilate the effect of my brave efforts.
This week I had a workshop where we made a fishbone diagram of what drives excess inventory and/or stock-outs. The result below reveals that an excess or a shortage of inventory is driven by every aspect of your organization.
The above is the reason investors see ‘inventory levels’ as the ‘thermometer of the management’. If you want to structurally lower inventories, it requires a professional management in every aspect of your business. Companies that perform better on inventory, are simply better managed. Companies that perform worse on inventory, should replace their management teams. Better management will lead to less inventory, but typically also a lower cost and a better service. In general, it improves the company performance.
As a novice in the supply chain field my biggest mistake was assuming that inventory algorithms would be able to cope with all of that. My biggest fortune was inventory leads to all aspects of supply chain management. So throughout the years it helped me to understand the importance of strategy, product management, sales, logistics, production, procurement, systems and the organization model, to improve the inventory situation.
Looking for a silver bullet, our approach to Integrated Business Planning shown below is what for me has come the closest. Supply chain segmentation is a key in strategy implementation. Too many companies struggle with integrating innovation and product management into their business planning cycle. Demand and Supply balancing is old news, but still a lot of companies struggle with the buy-in from sales and optimizing production along multiple objectives. Scenario management and integration with finance are required to get the CEO in the driver’s seat.
Take out any of these steps, and inventory performance will drop. Let me know your thoughts …read more
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