Pitfalls of Inventory

Management

In a supply chain with multiple sites it is not uncommon to find fairly autonomous management teams at each site. The objectives of each team may differ or even be conflicting. Changes at Site A might improve their performance but due to the conflicting ideas and objectives the changes may not be for the good of the entire supply chain.

Companies often come to conclusions about what satisfies their customers without actually consulting their consumers. For example the number of completed orders might be more important than the shorter time it takes to send out incomplete orders in smaller batches.

Consumers like to track the progress of the products they have ordered. They wish to know when their order will arrive but they expect to have updated information available to them to see where their order is in the delivery process. If this information cannot be obtained it may result in dissatisfaction, confusion and loss of goodwill.

Data at different sites is often not linked and this information has to be retrieved manually which can take a long time. In the meanwhile the wrong products are being produced and inventory backlog is increasing. This pitfall can be combated by ensuring that all operating systems can somehow be linked.

In any inventory system it is always a risk as supply chains cannot ensure the quality of incoming products or the time it will take to receive these products. Investment into the wrong resources may also be a result of the supply chain not being consciously aware of the uncertainties.

This is when we choose to use basic, static inventory policies, such as an ABCD classification, these are out-dated and just aren’t good enough. Stocking policies must be dynamic, and more considerate of variability of supply and demand.

operations supplying both internal and external customers tend to focus on the latter, even though the internal customer is using the input to then service external customers

This is mostly focused on companies that must merge products from several sources for final shipment to the customer. The perception then: coordination is poor, resulting in expediting costs, poor customer service, and inventory buffers

This is when Transportation decisions is based on lowest logistics costs, not total supply chain costs, especially inventory.

There is no standard approach for measuring the cost of inventory, and companies often under-represent the total costs.

Basically, the challenges of operational silos. The advent of the “integrated supply chain organisation” addresses the problem, but in the end, this really describes the heart of the supply chain challenge, doesn’t it?• Independent performance measures and incentive systems at different sites• Barriers between manufacturing and distribution

Discrete manufacturing costs are the focus on product design considerations, not total supply chain costs. We’re making progress here, and the notion of “designing for total supply chain costs” has caught on in the past few years.• No consideration of manufacturing and distribution in product-process design.• No consideration in design for customization and localization• Organisational barrier between design and the supply chain

Decisions to open or close a manufacturing or distribution center is looked at too narrowly, on those discrete costs alone, not on the total supply chain impact. With the use of network planning tools and general supply chain thinking, I don’t believe this is at all common today.• Chain decisions without consideration of inventory and response time efficiencies.

Looking at the supply chain only to the first-level customer (such as a distributor or retailer), not the end consumer. This basic issue of course set the stage for Dr. Lee’s subsequent work on “The Bullwhip Effect”, and is at center of today’s demand-driven supply chain paradigms.• Focus on internal operations onlyInadequate understanding of operational environment and needs of immediate and ultimate customers.