Pearson on Excellence: The foundation of integrated inventory management

This is no magic bullet that makes it possible for organizations to suddenly excel at end-to-end inventory management: to hold the right amount at the right place at the right time; to maximize enterprise-wide responsiveness to shifting demand; and to ensure crystal clear views of in-transit, in-process, and finished-goods inventories.

However, there is a foundation that almost any company can use to improve performance by balancing stocks across channels and geographies. Here is a brief look at this four-stage superstructure.

Governance
In an ideal inventory management world, there’s one premier decision maker across all channels and departments. Unfortunately, most companies are not structured this way, which is why inventory improvement initiatives need channel neutral policies and authority hierarchies.

Who, for example, owns the vendor agreements, P&L, and final decision-making responsibility when constraints arise? Setting policies upfront—before launching a transformation initiative—can make it easier for companies to effectively move and share inventory in response to rapidly changing business conditions.

Decision support
Strong decision support technologies and processes are needed to understand allocation alternatives and make smart choices. A good example is cross-channel inventory management analytics, which can help companies balance and predict the impact of stock reductions or stock movements relative to service levels.

Many organizations are starting to use cloud-based capabilities for this reason—effectively positioning a cloud services provider as the hub in a hub-and-spoke system of communication, intelligence gathering, and decision making. Cloud-based solutions can be implemented across all departments, including purchasing, distribution, and point of sale, and can be accessed from any location, computer, or mobile device. This is what you need in order to understand, observe, and benefit from a company-wide inventory balancing initiative.

Seamless execution
Companies achieve inventory management mastery by developing the versatility to smoothly allocate—and reallocate—orders, rebalance inventory to meet shifting demand, and smoothly manage inbound and outbound inventory flows regardless of channel.

This requires companies to excel in at least three areas. The first is inventory positioning: Cross-channel analytics can help your organization decide what goes where and when, but the enterprise still needs logistical expertise to turn insights into actions. The second area is collaboration: Working cooperatively across departments, geographies, and channels is key to the implementation of seamless inventory management.

The third area is dynamic order management, the essence of which is the “informed juggling” of inventory constraints, delivery routes, orders, logistics costs, and service targets, and subsequently following through on smart allocation and delivery choices.

Monitoring and continuous improvement
Continuous improvement is particularly complex in a seamless environment—where a decision that engenders a favorable impact on one area might easily have a negative impact on another area.

It’s therefore critical that companies’ improvement programs always speak to the overall—organization-wide—inventory management process. In the end, continuous improvement is not about reacting and adjusting, it’s about being able to monitor, make predictions about, and enhance all areas of your operations to achieve the best possible balance of low costs and high sales and satisfaction levels.

Getting started
Achieving fully integrated solutions for seamless inventory management is a long process. Fortunately, it can be approached incrementally. First, a governance model will need to be put in place to ensure that cross-channel integration efforts (e.g., organizational model, KPIs, financial incentives) follow a consistent direction and that formal policies are established.

The next step will involve standardizing all inventory-related processes that have cross-channel implications. Inventory overseers must establish processes that enable cross-channel functions to operate efficiently while minimizing risk—just as manufacturing and packaging organizations use sales and operations planning to foster communication and create constrained supply plans.

The third stage is to pilot IT and business solutions on a low-risk category or channel for a predetermined amount of time. Conducting pilots before industrializing cross-channel solutions allows you to defer large-scale investments until requirements are more thoroughly understood. Pilots also reduce the chance that rework will be required later.

Armed with the lessons learned during the pilot stage, companies can fully deploy these new capabilities. The new technologies and processes can be strengthened and industrialized to scale as they are being rolled out.

New territory
The most potent incentive to launch a seamless inventory initiative might be that very few companies—including your competitors—currently have similar capabilities. Buying and communication channels continue to proliferate, while customer tastes, demand patterns, and logistical barriers shift more frequently. Given these realities, it makes sense that the companies best positioned to profit from these trends will be those with the most seamless—insightful, integrated, responsive—inventory management approaches.