INVENTORY PLANNING & OPTIMIZATION
Inventory Management Is Key to
Unlocking Working Capital
Optimizing inventory safety-stock policies without considering capacity and material con-
straints is not enough. Inventory management should be viewed within the context of a sup-
ply and demand balancing process associated with S&OP. Rough-cut capacity planning within
the S&OP process should be augmented with inventory analysis.
—Nari Viswanathan, vice president and principal analyst, Supply Chain Management, Aberdeen Group
educing inventory is the top action companies
have taken to date in response to the recession
(reported by 54 percent). Companies want
practical initiatives that unlock working capital while main-
R
• Twice as likely to segment inventory based on customer-service requirements, typically owned by the demand planning
organization and is a quarterly/monthly process. Different products have different costs and lead-times.
taining customer satisfaction. With 62 percent reporting a
• 1.5 times as likely to leverage a statistical method for com-
drop in customer demand over the past year, focusing on puting inventory targets. Seasonal industries can see large swings
inventory is critical to avoiding a spike in write-offs due to in demand as well as lead-time variability across demand peaks
obsolescence when the stock builds up but cannot be sold. and lows driven by seasonality.
Working capital is a major driver of cash flow and ties up
money that could be used to pay back debts and interest on
The Outlook
short-term loans, to reduce the cost of financing, and to invest In 2010, expect to see more focus on inventory planning inte-in growth.
grated with overall supply chain suites. Instead of stand-alone
Best-in-Class companies are:
multi-echelon solutions, companies are likely to integrate inven-
• 1.5 times as likely to determine safety stock targets for tory planning and optimization into extended processes like
inventory at critical nodes in the supply chain. Companies fac- S&OP. Inventory management capabilities will be extended into
ing high customer-service-level requirements, short product execution processes (i.e. inventory replenishment). Replenish-
lifecycles, or multi-tier manufacturing or distribution networks ment has been an afterthought in inventory management imple-
have the most to gain from moving toward item-location level mentations, but it can be a market differentiator.
inventory policies.
There will be a greater focus on analytics. Companies will
• 40 percent more likely to replenish inventory into distribu- need to embed business intelligence and analytics into existing
tion buffers based on customer demand, typically owned by the inventory management in order to perform segmentation of their
inventory analyst and is a weekly/daily process.
