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Demand-Driven Inventory Management Strategies

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Companies across a broad spectrum of manufacturing, distribution, and retail segments are striving to be more demand driven.

The demand-driven strategy of allowing actual demand to pull inventory through the company and its supply chain seems simple. However for those using traditional supply chain management practices, other corporate strategies – along with some outside forces –make it a challenge to create a truly demand-driven supply and distribution network. Strategies such as increasing the pace of innovation and appealing to broader ranges of consumers are making product lifecycles shorter and product mix higher.

Global sourcing is making supply lead times longer. Expanding the company’s sales reach complicates distribution and fulfillment. Outsourcing makes companies more dependent on their trading partners. New regulations, new competition, and new technologies also factor in to make a very complex equation.
All of this makes matching supply with demand a dynamic process that the study findings suggest few have yet mastered. New geographic and demographic groups selecting from a wide range of products makes traditional forecasting by category, product family, or channel less effective. Despite using forecasting software, most respondents’ forecast accuracy is less than 80% over even a three-month horizon.

Clearly, statistical forecasting is not enough. Inventory management is the discipline that works to ensure that appropriate levels of stock are in place to address forecasted demand, forecast error and uncertainty in demand and supply. As market cycles accelerate, supply chains lengthen and go global, and products proliferate, companies must employ practices and systems that can keep pace.

 

In the face of an increasingly dynamic situation, most respondents to this study state that improving service levels is the primary driver to their inventory management strategy. Yet, most are still doing things in a relatively traditional fashion. They review processes and performance, inventory and service level targets infrequently. A majority have planning software, but not other applications that support dynamic, demand-driven response. Top performing companies in the study are more likely to use these practices and software.

Distribution-intensive companies must change how they do business – and some will need a new approach to information systems to support these new practices. The transformation to demand-driven responsiveness and cost-effectiveness won’t happen overnight. However, some companies are making great strides and gaining a competitive advantage over those stuck using more traditional practices.

Last modified on Tuesday, 11 September 2012 14:32

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