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.
