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Limitations of traditional inventory management practices

Inventory management is affected by variations at any stage of production, transportation or even warehousing. Proper inventory management will increase the company’s flexibility with the right product available at the right time at the right place.

Deficient definitions: Any channel strategy has to revolve around the ultimate objective – a satisfied customer. The issue that arises here is inadequacy in defining the customer service. Since it is a highly individual concept and cannot really be measured, evaluation of performance is a concern.

Unreliable delivery schedules: Inventory-in-transit can lead to confusion in the ranks of both manufacturers and the distributors. While the stock has already left the manufacturer’s warehouses, any disturbance in-transit can throw the distributors completely off-schedule.

Information systems: Most of the manufacturers and channel partners use information systems to streamline their operations. However, these information systems operate in isolation without any integration between themselves. This leads to duplication and redundancy in work. The manufacturer will have to retrieve information manually and compare it with information from partners. If databases at each stage of the supply chain carry the same information, information systems become redundant.

Simplistic policies: Most inventory policies are centred on the quantity of usage of goods stocked. However, they do not always consider the unpredictability surrounding the usage. Once they are also considered, the stocking policies will be more flexible resulting in minimal stock-outs and inventory pile-ups.

Impact of uncertainties: Most policies are formulated under a set of assumptions about the future. Ideally, the potential variations from the projections should be predicted and accommodated in the planning. When they are not, the impact of these uncertainties will bear heavy on the inventory management. The problem is more complex when the schedules of suppliers, distributors and other external channel members are considered. Integrating all these is a difficult task.

Organisational bottlenecks: In case of business units and other profit centres, the internal suppliers have their own goals to achieve, which derails the pursuit of synergy. Inter-departmental and other bureaucratic issues have often been the cause of many pitfalls.

The metrics: Supply chains today have morphed into complex and confusing structures. Measuring performance of even internal partners can at times be difficult; therefore evaluating the supply chain can be a cumbersome task.

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