Financial executives perk up when discussing demand planning and forecasting projects that not only produce one-time inventory reductions, but also result in higher inventory turns—which sustain lower inventory levels long term. This is a great way to boost shareholder value, as it offers more impressive financial results. Once projects take off, companies quickly recognize the significant returns on the investment. And on paper, results look even better, further pushing executives to reduce inventory throughout the supply chain.
Too often, however, the decision to cut inventory and how to do so is made with little input from the distribution center’s heads. Sometimes, distribution centers aren’t even aware of the changes until they quickly start seeing once-stable environments become less so. Even if companies do include distribution operations in the discussion, it often fails to take potential side effects into account simply because so few people actually understand them. When buyers do get the okay to start reducing inventories, it can take as little as a few days or as long as a few months—depending on the volume and speed of items—to see the impact.
Increases in inventory turns affect many facets of distribution center operations, making it necessary for organizations to take the time to uncover and plan for any mishaps that might occur--before they're felt by the customer.
Here are seven factors to consider before undergoing your next inventory optimization project.
(Jeff Primeau is a senior manager in the Supply Chain practice of management and technology consulting firm West Monroe Partners.)