Inventory in all its stages, from finished goods to raw materials, semi-finished goods, and work in process, represents a substantial investment. Managing it well pays off by driving revenue, profitability, and customer satisfaction, helping you maximize your inventory’s value while minimizing its risk. But inventory management is also notoriously complex and challenging.
Demand is the most obvious factor impacting inventory, so finding ways to better sense and respond to demand is often the first impulse for supply chain managers seeking to address inventory challenges. But supply chains feature many other constraints besides demand, so plans that leave those out often fall short. As a result, many organizations end up hedging their bets with safety stock to buffer against demand variability.
Even in the most ideal market conditions, an excess of safety stock leaves value on the table. It ties up working capital and incurs additional costs to store all those goods.
But market conditions today are far from ideal: retailers surveyed for 2022 RIS News Annual Retail Tech Study called current conditions “evolving, dynamic, changing, fluid, and unpredictable.” Supply chains are seeing greater volatility and uncertainty, more variability in lead times, and elevated financial and warehouse constraints.
Many organizations respond to headwinds like these by reducing inventory and becoming hyper-focused on price instead of overall value. Both are short-term tactics whose benefits are often offset by their long-term consequences, from missed opportunities, to disappointed customers, to reduced flexibility in managing inventory over the long term. A similar pattern comes when organizations rush to stock up to replenish out-of-stocks, as we have seen in the wake of early pandemic shortages, only to mark it down a few months later when they find their supply now exceeds demand.
Getting Better - Much Better - at Inventory Management
But it doesn’t have to be that way. No matter the size or your organization or the current sophistication of your inventory management capabilities, you can make your inventory work a lot harder for you. Instead of holding you back, your inventory investment becomes a tool or a lever to successfully navigate a complex marketplace for better financial and customer satisfaction results.
Supply chain planning platforms that feature a strong inventory application enable your organization to start from any level of inventory management capability and grow to greater maturity.
Basic tools such as ERPs or spreadsheets to manage inventory limit your ability to adopt an inventory strategy that looks beyond demand to take into account the bigger picture, including supply risks, constraints, and volatility. Evolving your capabilities you can begin optimizing inventory at each stage of its path from raw materials to finished goods, and do things like:
- Gain overall visibility
- Increase certainty in your inventory plan
- Optimize safety stocks
- Achieve customer target levels or service levels
- Make more data-driven inventory decisions
Moving Up the Value Chain
Once those benefits are in place, you can start gaining greater granularity and control in your inventory management. At this more mature stage, you can focus on business outcomes - being more efficient in fulfilling demand, optimizing costs, and balancing risk and opportunities.
For example, Atlas Inventory takes advantage of the Atlas end-to-end supply chain planning platform to enable you to:
- View inventory levels at different stages and take into account dependencies, costs,
constraints; inventory characteristics such as fast/slow mover, and factors including
geography, customer, product or channel
- Make more strategic decisions about inventory leveraging machine learning-enabled
recommendations and analytics
- Begin offering vendor-managed inventory (VMI)
As you reach a high level of maturity in how you handle inventory, you take a broader, more holistic picture into account in your inventory decision-making. Now you’re ready for game-changing abilities such as:
- Performing multi-echelon inventory optimization (MEIO)
- Optimizing based on all the “moving parts” and factors, such as cost, service level, or
- Leveraging machine learning to determine optimal safety stock calculations and
- Automating tasks
- Offering advanced VMI
- Experimenting and innovating
Conventional approaches to inventory management are inadequate in the face of mounting supply chain complexity. Taking a more strategic approach to inventory helps you learn to wield inventory as a competitive weapon, continually enhancing the maturity of your inventory management capabilities to optimize value and minimize risk.