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Inventory allocation: Dealing with shortages in supply chain

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Inventory Pop 5993

Whether caused by planned, poorly planned or unplanned events, inventory shortages do occur. No one wants to admit to inventory problems, especially to customers, but ignoring the problem is the worst decision possible.

Whether caused by planned, poorly planned or unplanned events, inventory shortages do occur. Customer impact and long-term account relationships depend on a company's ability to handle these shortages in a routine and organised fashion.

Increased demand volatility and cash-flow requirements are placing greater pressure on organisations to manage available inventories. Leaders have created an advantage by formalising a strategic and profitability-based response in times of inventory shortage. Laggards are not prepared to profitably manage available inventory in a way that decreases the negative impact to customers and shareholders.

While part of good planning is planning for times of failure, many companies do not have an established, formal and cross-functional process to manage the allocation of insufficient inventory to mitigate the impact to customers and shareholders. The unfortunate reality is that inventory shortages of varying degrees occur within a normally operating supply chain.

Regardless of the cause, unless there is a formal process to deal with all types of shortage, there will be an increase in customer dissatisfaction.

 

Effective inventory allocation

Companies that are able to establish an effective inventory allocation process possess the following:

1) Network awareness
A good outward-facing inventory allocation process starts with great internal knowledge. Essential to determining when and how much inventory is or will be available for customers, is having a handle on supply chain constraints. This includes not only manufacturing, but also supplier, transportation and warehousing constraints and limitations.

2) Supply modeling
The ability to model the appropriate ramp-up of supply based on changing capabilities and changing demand is paramount. This can best be achieved through the use of a constraint-based supply planning tool, where constraints and the picture of demand can be adjusted dynamically to reflect reality...Read more on ciol.com

Last modified on Thursday, 13 June 2013 09:43

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