Rethinking Inventory Management: More Than a Formula

[Editor's Note: For more on the latest research findings in inventory management, join Bill McBeath, ChainLink's Chief Research Officer for Thursday's free webcast, Dimensions of Inventory Management: Holistic Strategies for a Volatile World]

Much of the focus on inventory management in the business literature is on basic formulae approaches-how forecasts, lead times and such affect inventory. And they do.

But the fact is lurking across the enterprise and the supply chain that there are missed or powerful forces that influence inventory policy-both formal and informal. And these influences and influencers create some obstacles and dilemmas on getting a grip on inventory management.

Inventory Policy - Who Calls the Shots

We talked to over twenty companies for a recent research  project we did and our findings were quite insightful  on who and what  really influences inventory policy and therefore ultimately whether the enterprise is caught short without product to fulfill orders, or conversely,  ‘how much stuff is left ' unsold at  the end of season or end-of-life. Here are the top five:

1. Agreements and contracts. Each agreement with customers or suppliers is unique. They have lead times and inventory service level promises. Often these agreements are unseen-not codified or improperly entered into system.  Even larger companies policy on vendor management, consignment, stocking level or days of supply vary by commodity, channel, customer, geography or season.  To combat this, companies often put "standard" replenishment levels or lead times in their systems.  Obviously this maps in no way to reality and causes many planning errors and late deliveries.

2. Over anxious sales. A major influencer of inventory levels is the nervous sales manager ...