Content area
Full Text
EXECUTIVE SUMMARY | This article discusses the importance of establishing strong links between demand planning and inventory management processes. Several steps in the Sales & Operations Planning (S&OP) process can be more effective if this relationship is managed well. For example, linking expected demand patterns with a review of stocking risks and an evaluation of the best stocking strategy. It shows "how-to" examples for integrating demand planning with inventory control to gain a better overall balance across objectives leading to improved financial performance.
During my 30-plus years in Supply Chain Management I have participated in many projects as a practitioner, consultant or educator to improve demand forecasting. I have also participated in many projects to improve inventory management. My experience is that most businesses have not done enough to link these two areas from a people-process-technology perspective. This article highlights some lessons I have learned and provides some suggestions to improve the link between these important processes.
NEW PRODUCTS AND INVENTORY CONTROL
We all know the story regarding new products. Sales and Marketing are conditioned to over-forecast these in most cases. In their view it is much better to create excess inventory than to risk a loss of revenue. Of course, in most units Sales & Marketing are not held responsible for inventory levels or dysfunctional inventories. Supply Chain is accountable for inventory performance, but this responsibility does not usually address new product introductions in a timely manner. Often excess and aged inventories result from lower than expected demand for new products. Several years ago, a business unit I was working with to improve poor inventory performance got a new leader. When discussing this with the Supply Chain leader, he was told that new product and trial inventory was over $500K. He directed the Supply Chain manager to add this inventory performance to the monthly report reviewed in the S&OP meeting. Table 1 depicts an example of the report, along with comments.
* There were no sales for these 10 items in the month.
* Inventory increased on two items which were produced to the original plan although no sales have occurred the past three months.
* The current month-end value of this inventory ($552,000) represents approximately 85% of total new product-trial inventory.
Based...