Tuesday, February 4, 2014

Strategies and challenges faced by organization in Inventory Management

Effective inventory management is at the core of supply chain management excellence. Management of multiple types of inventories, including not only finished goods but raw materials, work-in-process, partner inventories and more, truly sits at the intersection of demand and supply. Since past few years managers and board of directors of companies have understood that there exist a direct link between efficient inventory management and corporate cash flow generation.

Companies have realized that effective management of inventories is not east. the problems and challenges faced must be holistically managed to bring down inventory levels while at the same time maintaining or even improving customer service levels. Some of the obstacles faced by corporations in effective inventory management are outlined here below:

  • Increased global scope and reach that must be managed
  • Increasing virtualization and resulting loss of visibility and control
  • Challenges resulting from multi-channel go-to-market strategies
  • Shrinking product life-cycles not only in well-recognized areas such as high tech and electronics but in virtually every manufacturing sector
  • Significant network changes resulting from mergers, acquisition and divestitures.
In order to effectively manage the inventories, many companies continue to use forecasting techniques as a key weapon but it offers a lot of resistance to improvement. Some of the other steps which companies are using to overcome inventory management challenge are:
1. Get much more granular with Safety Stock Management
2.Add inventory planning to the sales and operations process
3. Make regular use of supply chain network optimization tools for tactical planning
4. Consider distributed order management tools to manage multi-channel complexity and reduce inventories
5. Step up to inventory optimization software.

One of the finest example of excellent inventory management is the online retailer- Amazon. It started as a bookstore, yet today one can practically buy anything there. One of the main reasons why Amazon has become so successful is because of their inventory tactics and fast delivery. They have partnered up with UPS which brings out a great example of a business to business model. It is interesting to note that Amazon does not solely rely on computer systems, but rather uses a hybrid data gathering methodology that utilizes humans armed with barcode data collection software. The system helps to ensure that Amazon can keep up with its shipments, as at peak demand a truck will leave one of the company's fulfillment centers every 105 seconds.

Please see the video link attached herewith a how amazon does its inventory management:


While reading these below mentioned articles, one of the question which comes in my mind is what statistical software should companies use for effective safety stock management? How does amazon meets its criteria of safety stock management during the seasons when there will be high demand or certain items e.g. electronic goods during black friday sale on thanksgiving?

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