The perfect formula
For years, supply chain executives have asked how can they reduce inventory without affecting customer service levels or shifting cost to other supply chain partners? The answer could be a new inventory management strategy.
Having the right amount of inventory when and where it’s needed is a key element of corporate success. After all, losing control of inventory eats away at corporate profit margins and costs a firm its customers. As a result, today’s CEOs are well versed in inventory strategies such as Just-in-time (JIT), collaborative planning, forecasting and replenishment, and shared point of sale data. Yet, the wrong application of the right strategy can be just as costly as no inventory control at all. Reducing the wrong inventory, for instance, often leads to a reduction in customer service levels (CSL) with little impact on cost. That affects customer satisfaction. Strategies such as JIT, on the other hand, often simply shift the cost of carrying inventory back to the vendor with little impact on the total end-to-end total supply chain cost. Eventually, those costs affect all of the players in the supply chain.
The result is that supply chain executives are often left scratching their heads and wondering: How can I manage inventory in a way that doesn’t impact my customers or leave real money on the table?
Our work answers these questions using a new inventory strategy that we call the science of theoretical minimums, or STM. STM provides a simple and elegant framework to reduce cost and increase customer service levels by monetizing time delays across the extended supply chain. Unlike other strategies, managing to theoretical minimums reduces the total supply chain cost instead of simply pushing costs onto weaker suppliers. This means that STM reveals how much profit is being left on the table in the end-to-end supply chain. This monetization of delay cost provides supply chain executives with a clear picture on where to focus their efforts.
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Having the right amount of inventory when and where it’s needed is a key element of corporate success. After all, losing control of inventory eats away at corporate profit margins and costs a firm its customers. As a result, today’s CEOs are well versed in inventory strategies such as Just-in-time (JIT), collaborative planning, forecasting and replenishment, and shared point of sale data. Yet, the wrong application of the right strategy can be just as costly as no inventory control at all. Reducing the wrong inventory, for instance, often leads to a reduction in customer service levels (CSL) with little impact on cost. That affects customer satisfaction. Strategies such as JIT, on the other hand, often simply shift the cost of carrying inventory back to the vendor with little impact on the total end-to-end total supply chain cost. Eventually, those costs affect all of the players in the supply chain.
The result is that supply chain executives are often left scratching their heads and wondering: How can I manage inventory in a way that doesn’t impact my customers or leave real money on the table?
Our work answers these questions using a new inventory strategy that we call the science of theoretical minimums, or STM. STM provides a simple and elegant framework to reduce cost and increase customer service levels by monetizing time delays across the extended supply chain. Unlike other strategies, managing to theoretical minimums reduces the total supply chain cost instead of simply pushing costs onto weaker suppliers. This means that STM reveals how much profit is being left on the table in the end-to-end supply chain. This monetization of delay cost provides supply chain executives with a clear picture on where to focus their efforts.
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