Supply Chain Costs Under Control, But Inventory Turns Up, Study Finds

Mar 31, 2005 12:19 AM  By

In supply chain management, as in life, you win some, lose some. Although retailers and manufacturers have increased product availability and held supply chain costs, they’re moving inventory more slowly, reports the consulting firm Accenture. In a recent study of 184 supply chain execs from companies in Europe and North America, Accenture analysts found that overall product availability increased from 87% to 90% between 2001 and 2003, making for a 25% drop in out-of-stocks. During the same period, average supply chain costs also decreased, from 10.2% of sales to 9.8%.

But these gains came at the cost of inventory turns, which declined from 11.0 to 9.8 between 2001 and 2003. The food and consumer products industry turned in the worst performance, with average inventory turns plunging from more than 17 to fewer than 13. Retailers didn’t so well either: Their average inventory turns fell from 14 to fewer than 11 over the same period.

According to Accenture analyst Jose Bleda, “Availability is a particularly potent supply chain measure because ensuring that items are available when a customer wants them directly influences companies’ short-term revenues. However, lower inventory turns—and associated increases in inventory carrying costs—are preventing many companies from improving overall supply chain performance.”

Respondents were also asked to provide their views on opportunities for and obstacles to world-class fulfillment. Sixty-nine percent cited “improving management of inventory levels,” as the best cost-saving opportunity; 58% selected “reducing transaction costs.” The fulfillment challenge ranked highest was “collaborating with multiple partners” (67%), followed by “accessing currently untapped markets” (46%). Key obstacles to implementing collaborative practices were “organizational barriers” (44%) and “an insufficient understanding about how to work collaboratively” (39%).

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