Demystifying Inventory Optimization
Inventory optimization is often intimidating and frustrating. Once the most common barriers are removed, however, optimized inventory across the supply chain is easier to achieve than it looks.
The pressure to optimize inventory is only increasing. In industrial business-to-business supply chains, customer service level agreements are growing more stringent, with significant financial penalties for noncompliance. Meanwhile, brick-and-mortar retailers must successfully manage inventories across their network of distribution centers and stores to compete against Internet retailers.
I often find that inventory optimization intimidates and frustrates people working in supply chain. They are intimidated because they believe the problem is too difficult to solve. They are frustrated because solving it poorly has a material impact on their lives and operations—not to mention their careers. This is both unfortunate and unnecessary.
This article seeks to demystify inventory optimization so that you can optimize your company’s inventory immediately. It begins by representing the inventory optimization journey for any company as a progression through three efficient frontiers; companies begin at an ad hoc frontier and then move to a single stage frontier before finishing at a supply chain frontier. As I’ll demonstrate, the expected results of simply moving from the ad hoc frontier to the single stage frontier are substantial. And, I’ll explain the five impediments to overcome when moving from the ad hoc frontier to the single stage frontier.
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The pressure to optimize inventory is only increasing. In industrial business-to-business supply chains, customer service level agreements are growing more stringent, with significant financial penalties for noncompliance. Meanwhile, brick-and-mortar retailers must successfully manage inventories across their network of distribution centers and stores to compete against Internet retailers.
I often find that inventory optimization intimidates and frustrates people working in supply chain. They are intimidated because they believe the problem is too difficult to solve. They are frustrated because solving it poorly has a material impact on their lives and operations—not to mention their careers. This is both unfortunate and unnecessary.
This article seeks to demystify inventory optimization so that you can optimize your company’s inventory immediately. It begins by representing the inventory optimization journey for any company as a progression through three efficient frontiers; companies begin at an ad hoc frontier and then move to a single stage frontier before finishing at a supply chain frontier. As I’ll demonstrate, the expected results of simply moving from the ad hoc frontier to the single stage frontier are substantial. And, I’ll explain the five impediments to overcome when moving from the ad hoc frontier to the single stage frontier.
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