Nine Unconventional Ways to Manage Inventory

Like us, you’re probably sick of the terms “optimization,” “synchronization,” “collaboration,” and other staples of the corporate lexicon. Unfortunately, you’ll encounter those buzzwords over and over if you read—as we did—the research firm Aberdeen Group Inc.’s “Supply Chain Inventory Strategies Benchmark Report” all the way through. To spare you having to do that (and prevent you from overlooking what we must concede are the report’s many useful “takeaways,” to use another business cliché), we have extracted the important inventory management tactics you need to know.

Aberdeen Group’s recommendations are based on a survey of 178 companies’ supply chain and inventory management practices. Not surprisingly, the responses revealed a serious disconnect between how the companies wanted to manage inventory and how they actually went about doing it.

After stating this conclusion up front, the researchers throw in a series of distractions to do with leaders, laggards, best-in-class, an analytical framework called PACE (pressures, actions, capabilities, enablers), and so on. But those of us that just want to get on with it can ignore all this and go right to Chapter 4, “Recommendations for Action.” These, in the suggested order of implementation, are as follows:

(1) Get help from your suppliers. Roughly 56% of distribution-intensive companies use supplier-managed inventory. If you can get your vendors to adopt “lean” principles and just-in-time delivery, you may be able to make them shoulder most of the burden of inventory management.

(2) Try holding finished goods inventory at a central hub. This unconventional method frees up more working capital.

(3) Become complex. Rid yourself of simplistic inventory management policies such as weeks of supply. Ideally, you would shoot for something as comprehensive as item-location level inventory management.

(4) Make a single entity responsible for end-to-end inventory control. Local programs to reduce inventory aren’t always effective. Institute a consistent policy across the supply chain.

(5) Investigate emerging methods of inventory control. Think postponement, merge-in-transit, and risk pooling. Ask your 3PL for help.

(6) Invest in collaborative technology. Work with your suppliers on information sharing and proactive exception management.

(7) Take advantage of in-transit inventory. Use this “virtual” inventory to lower safety stock levels, reduce total delivered costs, and increase revenue.

(8) Install programs that account for supply chain variations. (Aberdeen calls them “multi-echelon optimization solutions,” but we figured a translation would be welcome.) These applications are particularly useful if yours is an intricate, multi-layered operation.

(9) Incorporate inventory goals into product design. For example, a component-based design enhances inventory flexibility and efficiency.

If you’re still interested in reading the entire report, visit http://www.aberdeen.com.

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