Inventory Optimization: A Never-Ending Race

The dictionary definition for “optimization” goes something like “making the best or most effective use of a situation, opportunity, or resource.” In the high-tech supply chain, optimization can mean any number of things at different points in time, but the term is used most frequently in the context of how products are built, managed, warehoused, and delivered.

Over the years, the industry has developed an entire language to explain what essential elements of inventory optimization should be included in any global, competitive supply chain. Words, phrases, and software solutions have hinged on things like improved planning, just-in-time and build-to-order production, lean operations, total cost of ownership analysis, make vs. buy decision-making tools, strategic sourcing, supply chain redesign, business process optimization, and extensive outsourced relationships.

However, supply chain dynamics constantly change. That's because geographical, political, financial, and consumer situations, opportunities, and resources are constantly changing. And that means supply chain professionals must constantly tweak their inventory optimization ideas and practices to stay effective and efficient. Simply put, what may have worked five or 10 years ago probably won't work today as well as it should. It's critical to think of inventory optimization as a never-ending and never-perfect facet of supply chain management.

Need proof? Just look at what's happened to the electronics supply chain in the last few years. After the earthquake and tsunami in Japan and Thailand's worst flooding in more than a half century, supply chain executives were forced to scrap their well-oiled regional inventory management strategies and rapidly implement Plan B, C, or D. Despite their best efforts and emergency backup systems, the switchover brought its share of challenges and industrywide financial risks.

Seen through a long-term filter, these disasters provide an opportunity to conceive, discuss, fine-tune, and implement next-generation optimization plans and strategies. Best-in-class supply chain leaders will think up effective inventory management techniques that capitalize on new sets of circumstances and the experience gained from managing through natural disasters in two critical technology-building markets.

On the technology side, inventory management is moving from legacy ERP systems and Excel spreadsheets to the cloud and mobile-enabled, social media-rich platforms and devices. Companies may find this both a complete relief (a supply chain manager can manage exceptions anywhere in the world at any time of day) and absolutely intimidating. They may ask themselves, “How do we migrate, dispatch, and protect the inventory data from multiple global suppliers and partners that supply chain managers need anywhere in the world at any time of the day?”

This area is still young and ripe with possibilities. Again, companies willing to do the heavy lifting and go beyond Band-Aid solutions to develop critical thinking about what lies ahead for inventory optimization will have first-adopter advantages.

Going one step further, it's fair to say that the companies that once dictated supply chain rules aren't necessarily the ones calling the shots today. That shift has left many businesses wondering exactly how supply chain needs will be addressed. For instance, who would have thought a decade ago that Google would be a major force in the mobile phone world and would be influencing hardware and software designers everywhere?

It's important for component makers to think like chess players. They must anticipate demand patterns and consumer fickleness and be ready to leap as soon as the initial ripples of change reach their doors.

As complex as inventory management has been and will likely remain in the foreseeable future, the two things supply chain experts have going for them are their flexibility and adaptability. Inventory optimization is as much a result of those time-tested and well-developed skills as anything else, regardless of the acronym of the day.

And, yes, any number of software tools and business strategies can help companies optimize inventory and its movement from Point A to Point B. But, really, it's a mindset game that will always require attention, resilience, and versatility.

4 comments on “Inventory Optimization: A Never-Ending Race

  1. Barbara Jorgensen
    July 17, 2012

    Hey Jenn — good summary. I have to admit, though, that the more I see “agility” and “resiliency,” the buzzword-averse I get. Like optmization, I get the concept, but what does resiliency mean and how do you get there? How do you measure it? And who determines how agile is enough? (I guess the customer…) I'm not criticizing the pundits or consultants or the companies selling the software, but who is going to opt for a non-resilient or non-agile supply chain? Argh…maybe it's just to hot here and I'm crabby 🙂

  2. Jennifer Baljko
    July 18, 2012

    Hi Barbara – I agree – the buzzwords and acronyms drive me crazy, all the time, not just when it's an 100 degrees (like it is today for me.. totally hear your pain with that). The rub is that everyone – or at least many supply chain professionals –  is a slave to measurements and metrics, but that doesn't mean they are really optimizating the supply chain. It means they are really good at plugging in numbers the finance team wants, but may have their hands tied on any course-correction. A set of metrics is useless if they are not strategically used to change the way things have been done. Maybe, what someone needs to do is create a metric or some other mathematial formula that takes the numbers most people collect, filters it against corporate definitions of flexibility and agility and spits out some sort of red-flag/green-flag analysis that says, “Under A,B or C circumstances the company does really well on delivering X, Y or Z within the contracted supply chain partner requirements; but when M,N or O happens, the company is not able to move quick enough.” I suppose that what the software makers are doing, but its hard to know where the gap in think and execution is when it comes to inventory management.

  3. Barbara Jorgensen
    July 18, 2012

    Good info, Jenn. I agree that there have to be metrics to measure performance, although as you point out, metrics don't always mean anything or reflect what you are trying to measure. A couple of recent blogs touched on optimization solutions: A Seagate contributor talked about running “what if” scenarios to help plan post-flooding rebuilding strategies and another contributor wrote about how SAP can be used to benchmark performance options against historic data. This helps optimize things on the production end. So I guess there are solutions out there and each company can measure its own metrics. Pulling them together into some kind of benchmark, though, may be difficult because the needs of each partner differ.

    Still, even a “a resilient supply chain contains the following features/atributes” would be helpful. Maybe I just have to search more…

  4. Jennifer Baljko
    July 19, 2012

    Barbara – These are good examples, and I'm sure many more exist. Let's extend an open invitation to everyone reading this to chime in on some of the solutions they're implementing or heard about. Like in Seagate and SAP examples, sometimes simply asking “what if” and planning against those scenarios while comparing historic data will go much further than an pre-defined set of figures in a spreadsheet.

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