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How to Convert Inventory From Cost to a Competitive Advantage

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Inventory has been and continues to be the lifeblood of supply chains. Properly managed, it drives revenue and efficiency for companies. But as the nature of supply chains changes, so must the policies used to manage inventory. Traditional inventory management practices are being made obsolete by increasing global supply chains and contract manufacturing, more dynamic product life cycles, and multi-channel distribution.

 Management Actively Re-evaluating Inventory Management Practices

Inventory management processes and technologies are being actively re-evaluated by companies today. Nearly two-thirds of respondents to Aberdeen’s inventory management
study say they have made or been asked to provide recommendations in the past six months to management on how to improve their inventory management technology. Fully, 83% of companies say they have made or been asked to make process recommendations within the past six months.

Inventory Management Goals Should be Re-evaluated: From Cost to Competitive Weapon

The majority of companies are looking at inventory as a cost-related item (63%) but 27% of companies are thinking of inventory as a way of gaining market share through superior service and product availability. The truly visionary companies are leveraging their inventory as a competitive weapon and have moved to network-based inventory management versus doing it a facility or company level. They use inventory to optimally position supply when and where it is most needed and most profitable. By performing segmentation of their customer channels and products, these companies are able to attain significantly higher return on assets than their competitors.


Characteristics of Best in Class Companies
Best in Class companies are defined as companies that have customer service levels above 96% and that have simultaneously reduced inventory carrying costs (which corresponds to the top 10% of respondents). The Best in Class are twice as likely as their peers to:
• Use multi-echelon inventory optimization
• Have deployed a supply chain visibility system
• Use a forecasting system that supports customer-level forecasting
Overall, Best in Class companies are more likely to supplement process changes with
improved technology than are Industry Average and Laggard companies.

 Top Techno for SCM Inventory Reduced

Recommendations for Action

1. Use network design technology for more frequent strategic decision making: Companies should increase the frequency of their network strategy assessment to at least once per year, and use this process for assessing business growth scenarios, supplier network design, etc.
2. Evaluate a commercial multi-echelon optimization solution: The new generation of commercially available multi-echelon optimization solutions at last enables companies to properly account for variation in the supply chain. Companies with multi-echelon manufacturing or finished goods distribution networks should not delay in investigating these solutions. Try a pilot project first before embarking on large scale implementations.
3. Leverage investments in existing demand management tools and evolve towards customer-level forecasting. Companies can gain significant value through customer segmentation for customerspecific service levels and developing customer-specific forecasts.
4. Look to do usage-based supplier inventory collaboration: Increase supplier inventory collaboration and move away from arms-length purchase order based transactions.
5. Actively manage in-transit inventory through supply chain visibility: Enterprises with long transit times should investigate the different ways to use in-transit inventory as a virtual inventory bin to lower safety stock levels, reduce total delivered costs, and maximize revenue opportunities.
6. Look for managed services approaches to bridge the skill set gaps for implementing inventory management technologies and processes.

Download below the full white paper.

Last modified on Tuesday, 02 October 2012 09:14

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