You invested in the tools. You implemented the processes. You thought you had your inventory under control. But here’s the hard truth: your inventory might be sneaking around behind your back – racking up costs, hoarding working capital, and ghosting your optimization efforts.
Inventory optimization is one of the most visible places where organizations expect to see a return from supply chain investments. But often, expectations fall short. Why? Because companies often fail to let go of old habits and siloed metrics, and they fail to align decisions across functions. Yes, the dreaded silo!
If you're wondering why your optimization efforts aren’t delivering the value you expected, it might be time for an intervention.
Here are three signs your inventory is cheating on you – and what you can do to fix it, before it costs you even more.
1. It Says It’s “Optimized”… But Keeps Coming Home with Excess Baggage
Let’s talk about optimization – or the lack of it.
One of the most common planning mistakes is overriding optimized plans to keep the plant running. It's understandable – no one wants idle production lines. But producing beyond what’s needed leads to excess inventory, which inflates carrying costs and erodes flexibility.
You may gain marginal efficiency on the plant floor, but if it adds millions in inventory costs and ties up working capital, is it worth it?
🚩 Red Flag Behavior: Overriding optimized plans to maximize short-term efficiency, without understanding the long-term impact to inventory.
🛠 The Fix: Reconcile Relationship Goals. You need to align performance with value across the organization as a whole. If your plant’s wondering eyes are chasing utilization at the expense of working capital, your inventory isn’t truly optimized. It’s key to connect plant decisions to enterprise value – and avoid mismatched goals.
For example, some companies use a rules-based ROI model: if a production plan demonstrates a return on inventory investment threshold, it proceeds – no override debates This makes it easier to balance operational efficiency with inventory health. Benchmark past override decisions to create a return on investment rules that you and your colleagues trust.
When teams stop overriding smart plans to chase local objectives, real value emerges for the entire company. Remember, inventory isn’t cash that can be taken to the bank. It takes time to sell inventory, tying down your supply chain flexibility.
2. Your Inventory Won’t Tell You What It Really Needs
You’ve got your ABC segmentation. You’ve got your dashboards. But somehow, you’re still drowning in excess inventory in some areas while scrambling to solve critical understocks in others.
That’s because basic segmentation models often fail to reflect the complexity of real-world constraints. Segmenting based on cost alone ignores the operational reality of your network. Your inventory knows it, and yet keeps getting away with bad behavior.
🚩 Red Flag Behavior: Treating all products (or locations) the same way, regardless of their actual supply chain constraints or behaviors.
🛠 The Fix: Focus on What Makes Your Inventory Happy. Effective inventory management isn’t about rebalancing once excess has built up. It’s imperative to prevent excess before it happens. That requires contextual segmentation to understand what is important, prioritizing and focusing on your inventory needs.
If warehouse space is the constraint, segment by physical volume (such as equivalent pallets). If production changeovers are the bottleneck, segment by cleanout time or switching frequency. If shelf-life is the risk, segment by freshness or expiry sensitivity. Or, segment using a combination of these. Your supply chain is likely impacted by the effects of more than one attribute.
A great example comes from a CPG company that restructured its raw material planning by grouping SKUs and locations then aligning these classifications to hit procurement minimums. This simple shift to focus on hitting mins once, rather than repeating the same order for each SKU independently, drastically reduced raw material overproduction and improved cash flow.
Rebalancing should start upstream, with smarter planning based on your real-world needs. If your segmentation doesn’t reflect what’s actually limiting your supply chain, you’re solving the wrong problem.
3. It Promises Consistency… Then Blindsides You
Even with a perfect plan, things can go sideways. Real-world disruptions will cause variance. That’s life. The key is to understand what drives those variances, and how quickly you can detect and respond.
If your inventory levels swing wildly and you’re constantly reacting instead of anticipating, your visibility and control need attention.
🚩 Red Flag Behavior: Disruptions go unnoticed until the impact is severe, and no one knows what caused the mismatch between plan and actual. Without clear diagnostics, the root cause goes unnoticed, and the cycle repeats.
🛠 The Fix: Take Time to Understand your Inventory. Inventory should be a reflection of intelligent risk management. Advanced supply chain planning software highlights disconnects in near real-time, self-learning from disruptions to help supply chain teams adjust faster. This helps you detect risk patterns, and simulate different scenarios to prevent future mismatches.
In addition to these capabilities, you need tight diagnostics, fast feedback loops, and a culture that asks why instead of just fixing symptoms: Why did the plant produce more than planned? Why are we carrying three months of safety stock for a stable SKU? Why did that forecast override happen, and did it create inventory value-add? If your team can’t answer these questions quickly, your inventory may be flying blind, and taking you with it.
Predictability comes from understanding inventory variance (instead of eliminating it) and responding faster.
Much like Forecast Value-Add has done to improve forecast and business processes that caused issues, Inventory Value-Add answers these questions to identify the holes in your Supply Planning processes and inventory management strategies that led to this mismatch.
Fix the Relationship: Leave the Bad Habits Behind
We all know that technology isn’t a silver bullet. The right optimization requires a behavioral shift. Here’s what companies that actually extract value from inventory do differently:
- Break down silos. Inventory decisions affect transportation, warehousing, and customer service. Shared metrics are critical.
- Align incentives and decisions across the business. Look for competing priorities and which aligns more closely for the company’s objectives.
- Scrutinize every override. If someone changes a plan, they should justify it with data and be able to track the outcome.
Your inventory is a mirror of your supply chain health. It reflects how decisions are made, how teams collaborate (or don’t), where behaviors contradict strategy, or where planning tools may not be fully leveraged.
So, ask yourself: Are you clinging to old habits? Or are you truly optimizing performance, rebalancing intelligently, and controlling your inventory with clarity and intent?
Done right, inventory optimization can generate 18 – 22% in annual value. Not through heroic efforts, but by aligning behavior with strategy.
Is your inventory helping you grow, or quietly draining your resources?
It’s time to stop letting your inventory cheat on you. Set boundaries. Demand transparency. Build trust.
You deserve an inventory that actually has your back. We can help you take back control, and achieve real inventory optimization that you can use as a strategic lever. Think of it as relationship therapy - for your supply chain. Let’s have a chat!
