Keeping the inventory out of the warehouse

At its core, Inventory Management helps businesses keep holding costs low while avoiding stock outs and maintaining decent service levels. However, as has been evident, inventory management and control is easier said than done. Accurately mapping demand with supply can be a gargantuan task, which often results in companies failing to maintain the right inventory levels. Having said this, companies  have to be highly meticulous  when estimating stock  because inventory strategies can be major determinants of their success or failure. As a matter of fact, inventory strategies impact the supply chain as a whole. One incorrect estimation can potentially cause a pile-up accident in the entire supply chain. Global sourcing is stretching supply chain across various countries, thus making it even more cumbersome to manage inventories for an efficient, slack-free supply chain.

After reading this article http://www.ups.com/media/en/wp_inventory_in_motion.pdf, I couldn't help but mention about this interesting and efficient way of managing inventory. Often addressed as Inventory-in-motion, this contemporary way of managing inventories can help companies overcome most of the issues associated with inventory management.  In this direct-to-store approach, a third party keeps the inventory moving from manufacturers directly to the end customers, thus eliminating the  distributor’s  need of actually storing it in his warehouse. An example of a company which improved operational efficiency and cut down inventory costs considerably is Nike. Nike has outsourced its logistics entirely to UPS. Instead of going to a Nike warehouse, Nike products are delivered directly from Asian factories to UPS Kentucky facilities. UPS employees then check these orders, package them and deliver them to their intended destinations. Hence, with UPS entirely taking care of Nike’s inventory, Nike gets more time to concentrate on its core competence of designing shoes and marketing them.

Source: http://www.ups.com/media/en/wp_inventory_in_motion.pdf

 This method not only diminishes inventory costs, but also reduces the fulfilment time by a great deal. A direct consequence of not having to stock products is reduced inventory order cycle time. This in turn makes the forecasting period shorter, thus significantly improving the accuracy of demand forecasts. Furthermore, this method accords more transparency in the supply chain by preventing distributors from manipulating demand. Hence, the direct-to-store method not only brings about reduced costs and improved profits for companies, but also helps the entire supply chain to function smoothly.

Another example: 

Source: http://www.ups.com/media/en/wp_inventory_in_motion.pdf

However, this approach, like any other, has its own set of shortcomings. Without an inventory buffer, the risk of a stock out will always loom over companies. Secondly, with no safety stock available, inaccurate predictions about demand can wreak havoc on a company’s sales and its reputation. Hence, the question that steals the focus is whether the benefits of a moving inventory outweigh the assurance that comes from holding stock in-house? Is the proposition of relying on a third-party for shedding load off your shoulders not a risky one?

Although the answers to these questions are complex, companies have no choice but to figure out what works best for them. 

References:

http://www.ups.com/media/en/wp_inventory_in_motion.pdf

http://highered.mcgraw-hill.com/sites/dl/free/0073525235/940447/jacobs3e_sample_ch11.pdf

http://books.google.com.au/books?id=vjngr7MzXU0C&pg=PA193&lpg=PA193&dq=UPS+employees+assemble+laptops&source=bl&ots=qrbH-dZ4Af&sig=71aes7rYt99MXZFHiAMfoyD4_oc&hl=en&sa=X&ei=0PD2UsjaJ4WNkAWYqYHADg&ved=0CDsQ6AEwAg#v=onepage&q=UPS%20employees%20assemble%20laptops&f=false