Additionally, leading retailers are getting better at managing the complex and dynamic nature of demand, knowing that more flexible product flow and facility capabilities can increase service levels at lower costs. Having facilities that can both stock and flow the same SKU, coupled with an integrated S&OP process that can show the levels needed for stock and flow, allows a supply chain to meet any necessary ramp-ups quickly. For example, Home Depot can improve inventory management during natural disasters such as hurricanes by redirecting merchandise from distribution centers in unaffected regions to affected regions within 24 hours. Of course, true success depends on merchants' ability to coordinate orders with suppliers and stores so the supply chain network knows exactly how much product to send.
- Measuring and tracking inventory accurately
Inventory issues are exacerbated when there is no visibility into on-hand inventory data, consumer demand data and forecast data. Because solving this problem can be an expensive proposition, often requiring new systems and software, many retailers deploy multiple, disparate manual processes. This is not the answer. The solution is an integrated process that captures and disseminates data to managers across the supply chain.
- Information flow is key
Tracking key metrics — including forecast error percentages, lead-time variability versus target and customer service level percentages — can provide solid insights into inventory. Companies must know what is driving required and excess inventory before they can solve their inventory challenges.
Bridging the Gap
Inventory tends to be a line item on the balance sheet for a CFO, so it is often up to business managers to monitor and sustain inventory levels accurately. Yet the job requires more than simply measuring inventory turns. Business managers must also understand and act on consumer, internal and supplier dynamics. Proper inventory levels can lead to profitability and increased margins, but only when the five drivers of inventory work together to solve the problem.
About the Authors: Sumit Chandra is based in the Chicago office of A.T. Kearney and can be reached at email@example.com.
Mirko Martich is based in the Chicago office A.T. Kearney and can be reached at firstname.lastname@example.org.