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Excess and Obsolete Inventory Undermines Operations Performance
For years manufacturers have invested billions in inventory control programs and inventory management software to no avail. Despite these substantial investments, meaningful inventory reduction is elusive as inventory levels remain high, representing a huge drain on operations performance. Why? In a perfect world, there would be no inventory. When a customer placed an order, manufacturing would receive the needed materials and build to that order having only incurred inventory for moments. But the world is not perfect, so the inventory system serves as a buffer to ensure better responsiveness to customers.
But as supply chains have become globally extended with more vendor managed inventory (VMI) sites, inventory hubs, distribution centers and the like, there are virtually unlimited locations to place safety stock. While finance treats inventory as a corporate asset, in a world of constant change inventory actually becomes a liability that can handcuff operations performance. Excess inventory, especially in a more finished state, limits agility and responsiveness. In a dynamic world, inventory quickly becomes obsolete and frequently situations occur where you have the wrong mix. Companies often run incentives to shift excess inventory which not only reduces margins but also may also draw demand away from high margin products.
The key to a breakthrough in inventory management is not simply to use inventory software to position safety stock, but to empower the organization as a whole to be more responsive to change. Doing so enables operations performance improvements through dramatic inventory reductions throughout the supply chain.
- “We use RapidResponse to find data integrity problems, planning parameter mistakes, potential errors in planning and managing material—and it can also be used for the more complex analyses that a master planner would do for downstream supply chain plant transfers and the like.”
- Ron Stappert, manufacturing operations manager of Jabil Circuit's Guadalajara facility
When supply chain decision makers are empowered with proper supply chain management solutions that deliver global supply chain visibility and capabilities to drive improved planning, risk tradeoff and response, they are able to leverage inventory assets efficiently to drive more efficient and effective response to change. Kinaxis™ RapidResponse™ is such a solution. The result is that inventory buffers can be reduced. Given that inventory buffers are a means to achieve greater responsiveness, the only way to significantly impact operations performance is to address the root cause by empowering greater responsiveness.
