Guy Courtin, GT Nexus
Businesses, like bodies, need fuel to survive. For people, that fuel comes in the way of food –specifically, calories. For many businesses, that fuel is best represented in the form of inventory.
Traditional inventory management in a brave new world
Earlier this summer, we had our Bridges at Inforum user conference in New York City. Among the many supply chain topics that highlighted the event was the age-old topic of inventory management.
In a world of consumerization, where ambient commerce is becoming the norm, supply chains are under constant pressure to meet consumers’ needs. Products, aka inventory, must be available – in the right style, colour, type, price, and location to meet the customer desires.
So, what has changed when it comes to managing this inventory against new demands? Not much.
But supply chains need to view inventory as we humans must view calories. We need calories for energy and productivity, but if we consume too many calories, we get fat. Which is exactly what has happened to many of today’s supply chains.
Treat Your Inventory Like Athletes Treat Calories
The 23-time Olympic gold medal winner Michael Phelps is legendary for the number of calories he consumes – 12,000 a day. Granted, for someone who spends most of his day in the pool, Phelps needs those calories to keep him going. Of course, if Phelps were to lead the life style of most 9- to 5-ers, those calories would be converted into a beer belly or worse.
What can supply chains learn from a Michael Phelps consumption of calories? If a supply chain is going to be running at Olympic levels of activity, a business had better add the necessary inventory.
There is however the aspect of fine-tuning – out of season or in less frantic times, a business must be able to throttle up and down inventory calories to meet demand. This is an ongoing, dynamic discipline.
Not All Calories Are Created Equal
Inventory and calories aren’t all created equal. Getting calories from chocolate and candy isn’t the same as getting them from tri-colored quinoa and kale.
Likewise, in a supply chain, different types of inventory are necessary to make sure the supply chain runs well. What is the right balance of raw materials, work in progress, inventory in motion, finished goods etc?
Businesses need to ensure they have a healthy ‘diet’ of inventory – and just like a diet, it is all about balance.
Keeping Track Is the Key to a Healthy Diet
To better understand how to balance inventory and match it to demans, a business must have a better view of the entire holistic supply chain. Just like an athlete consuming calories, a business needs to have a complete view of when and how inventory should change.
If an athlete is running a marathon on Saturday, chances are they will carb load on Friday to build up energy. By comparison a bride to be aiming to fit into a dress for the big day will cut down on the cheeseburgers.
Having a holistic view of business activities means having a better understanding of these dynamic needs. Having a greater understanding and view of possible demands and outages is crucial to having the best inventory strategy.
Is inventory bad? Of course not! Just like calories, we all need to consume them daily to have energy, but like our calories we must be conscious of the amounts of inventory we hold and consume. Sometimes we need more and sometimes we need to cut back.