When it comes to being a best-in-class distributor, it is imperative that visibility be maintained across all departments. It is through visibility that corrective actions can be taken to mitigate issues before they become a customer problem or lead to an error that disrupts inventory protocols. As a product-driven company, inventory must be well-balanced, ensuring that there’s not too much of one product or too little of another one. And with ordering platforms being much more diverse than what they used to be, inventory management becomes all the more important.
Here’s a close look at the inventory profile for best-in-class companies when compared to all others. We’ll also look at the key inventory management capabilities that differentiate these best-in-class companies.
First of all, when it comes to business pressures that influence inventory decisions, best-in-class companies tend to be more attuned with the growing demand for service made by customers; this leads to the conclusion that these best-in-class companies are much more externally sensitive and have a broader and more in-depth awareness of the market. And while these companies are concerned about the growing global complexities of their supply chains, this concern doesn’t cause them to be inwardly focused. In fact, they use this concern to help them be more customer focused.
Also of importance to note is that the average order-to-delivery lead time-frame for best-in-class companies is less than a fourth of the lead time for other companies. When speaking in regards to a supply chain, there’s no denying that time equates to inventory. With this in mind, anything that doesn’t fall into the actual process time — however, is still part of the lead time — will lead to additional buffer stock to make up for the difference. By keeping lead times accurate, this reflects the real process time and leads to enhanced inventory management efficiency.
According to an Aberdeen Group research study, key capabilities that drive performance for best-in-class companies can be best viewed with the following statistics:
- 86 percent of best-in-class companies have the ability to better understand trade-offs between service level and inventory investment whereas only 47 percent of other companies have this ability.
- 78 percent of best-in-class companies have a closed-loop integration of supply chain planning and execution whereas only 52 percent of other companies do.
- 67 percent of best-in-class companies have the ability to precisely measure the required inventory investment needed to achieve different service levels whereas only 46 percent of other companies do.
If your company is striving to be a best-in-class, and it should be, it is crucial to understand the trade-offs between service level and inventory investment. All in all, your service level policies will drive the amount of inventory you need to achieve each level. With visibility, you gain the ability to alter inventory as needed in the most efficient manner possible.
Originally published October 2015. Updated for accuracy and relevance.