If you’re a Chief Supply Chain Officer (CSCO) trying to keep inventory costs down and service levels up, consider adopting the holistic view of supply chain inventory policies, plans, and practices. Modeling the effects of changes in practices end-to-end, as well as down to the SKU or site level, can balance services and costs in an increasingly volatile environment.
From raw materials to retail, no actor in the supply chain wants to be the one holding excess stock or missing sales due to stock-out. Even if you’re not holding the bill directly, finding inventory inefficiencies elsewhere in the supply chain saves time and money for all involved.
This is why more and more retailers are awaking to the total value chain view of supply, which includes better visibility and communication upstream, beyond just direct suppliers. Without this view and connectivity, retailers are unable to quantify and understand the various stages of supply. Nor are they able to shape demand around what’s coming, such as promotional positioning to pass through an expected stock overage.
Because traditional inventory management systems are limited in scope, many supply chain actors still focus strictly on minimizing safety stock, without integrating plans for demand-based segmentation. That’s where a holistic approach can help.
The holistic approach
Well-functioning supply chains maintain shared goals and shared risk management to reach desired service and cost levels at all stages. This requires a holistic, sometimes end-to-end, view of inventory management and supply chain design. Holistic in this case is a three dimensional approach that includes vertical supply chain activity and integration, as well as horizontal communication and activity among internal departments or lateral partners at each link in the chain.
This is important because supply chains are complex and unpredictable networks of vertical segments. With so much volatility, it can be hard to determine risks and to prepare for them without IT-enabled collaboration. Factors that can disrupt the flow of goods include:
- Customer changes
- Price shifts
- Transportation delays
- Regulatory issues
Fortunately, the ability to use advanced analytics to model and compare practices on an end-to-end basis can help supply chain leaders optimize operations for the greatest net benefit while proactively maintaining a competitive advantage for their organization, and their value chain as a whole. This requires investing in the ability to model and simulate various what-if scenarios to optimize supply chain design.
Stan Aronow, Research VP with Gartner, puts it this way: “…today’s supply chain leaders face a much different business environment…Continued investment in innovative supply chain capabilities will be required to meet this changing landscape.”
Supply chain design
To determine supply chain design, you should look at different scenarios and variables to help build effective strategies beyond minimizing safety stock. With the help of automated simulation, an optimized end-to-end supply chain design can improve inventory strategy, throughput efficiency, and customer service throughout. Use a holistic approach to:
- Evaluate costs when introducing new service targets
- Monitor customer buying behaviors and identify demand patterns
- Identify variables that affect production, transportation and lead-times
- Analyze flow patterns and structures of short- and long-term effects
Implement effective inventory strategies
Forecast automation and advanced modeling and simulation are the keys to easy and effective what-if testing and scenario planning. With these tools, organizations and supply chains can identify decision-based outcomes, such as potential bottlenecks or improved throughput. The end result is better strategy for inventory, working capital, and shared supply chain management, especially in volatile environments.
To wrap up, note that supply chain design is a continuous process for which set-and-forget policies no longer work. Focus instead on continuous design modeling for continuous improvement in the balancing of cost, service, and sustainability.
About Vanguard Software
Vanguard Software introduced its first product for decision support analysis in 1995. Today, companies across every major industry and more than 60 countries rely on Vanguard Software’s Integrated Business Planning (IBP), forecasting, and advanced analytic cloud platform. Vanguard Software is based in Cary, North Carolina.