Three issues in inventory optimizations and their solutions

Filed in archive Point of view on October 31, 2007

In my point of vies, effective optimization of inventory in the supply chain is one of the most important tasks in SCM division but this task can very challenging. Below you can read some of my thoughts on the issues in inventory optimization and possible solutions for them:

- It happens often times that as companies grow, they develop and introduce different types of products to the market. When I use the term different products, I don´t refer to the physical attributes but more to supply chain needs: some products are fast moving some not, some of them have seasonal demand and some not, and so on. The problem is that many companies use one supply chain for movement of all these products. That will lead to lots of excess inventory or shortage of certain products in the chain. The solution is to start with categorization of the products based on demand and supply complexity and design 2 or 3 types of supply chain for each major product category.

- People usually forget about their initiatives after some time. It´s important for inventory optimization not to fall in this trap. dedicating one person to this task, putting measures and action plan for monitoring and improving the inventories are some quick solutions. The monitoring and refinement is really important not only in respect to operational measures but also in tasks such as periodic evaluation of the supply chain design to address any supply chain or financial inefficiencies.

- It´s also a nice thing to use the suitable software with sophisticated simulation features to figure out what is the optimal inventory mix throughout the chain. This prevents the problem of oversimplification of inventory decision making process.