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About the Authors

William (Bill) Cogdill
Director and Consulting Partner
Manufacturing and Logistics Business Unit
Cognizant


Bill Cogdill has over 40 years of marketing, operations and supply chain experience and is part of the consulting leadership team responsible for setting strategic direction for solutions that address client challenges. Bill can be reached at William.Cogdill@cognizant.com.

Girish Dhaneshwar
Director and Consulting Partner
Retail, Travel &Hospitality and Consumer Goods Business Unit
Cognizant

Girish Dhaneshwar has over 18 years of operations and supply chain experience and is part of the consulting leadership team responsible for setting the strategic direction and leading clients through transformational initiatives in supply chain. Girish can be reached at 
Girish.Dhaneshwar@cognizant.com.


   

Ganesh Iyer
Manager
Manufacturing and Logistics Consulting Practice
Cognizant

Ganesh Iyer has an extensive experience advising companies supply chain planning and execution issues across manufacturing industries. Ganesh can be reached at Ganesh.Iyer@cognizant.com.

Nishanth Vallabhu
Director
Business Consulting Practice
Cognizant


Nishanth Vallabhu has over 13 years of experience in the supply chain space working extensively with leading manufacturers and retailers. His current areas of interest include inventory optimization, deployment planning and sales and operations planning. Nishanth can be reached at Nishanth.Vallabhu@cognizant.com.

Supply Chain Comment

By Bill Cogdill, Girish Dhaneshwar, Ganesh Iyer, and Nishanth Vallabhu, Cognizant

April 25, 2013



Adaptive Supply Chains (Part 2 of 3): Inventory Management: How Incremental Improvements Drive Big Gains

By Feeding Social and Mobile Data into Planning Systems and Overlaying Analytics, Manufacturers and Retailers can Reduce Inventory Waste and Become More Precise in Targeting Customers



Inventory has been the subject of keen scrutiny since the dawn of commerce. Because items sitting on the shelf of a store or in a warehouse literally represent unrealized sales dollars, retailers have always experimented with ways to fine-tune their inventory practices since time immemorial. The eternal trick has always been to hold enough inventory to satisfy demand while not wasting money by holding too much.

These inventory basics still apply, but what has changed is the dizzying pace of commerce today, its global reach and heightened consumer expectations driven by social shopping, online review sites and comparison pricing on the Internet. There is little doubt supply chain velocity has steadily increased in recent years, though it is difficult to come by statistics on the speed of an object moving through the supply chain from production to consumption. For evidence of increased supply chain speed, however, one need only look as far as Amazon Prime’s two-day delivery service (through which most of its orders are fulfilled) to see that week-long delivery times for Internet orders are a thing of the past.1

Cognizant Says:

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Supported by business process change where needed, adoption of technologies such as global inventory management systems and advanced planning solutions are helping grease the wheels of commerce (and therefore, the movement of inventory).
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At the same time these forces are buffeting retailers (and by extension the manufacturers that supply them goods), technology is coming to their aid by facilitating their adaptation to the new marketplace dynamics. Supported by business process change where needed, adoption of technologies such as global inventory management systems and advanced planning solutions are helping grease the wheels of commerce (and therefore, the movement of inventory).

Savvy retailers are also trying out new inventory placement techniques, fulfilling orders from distribution centers or directly from manufacturers where it makes sense. Some are also pushing the task of inventory management back to manufacturers, with a return to vendor-managed inventory (VMI).

With such high stakes for positive consumer sentiment, retailers and manufacturers are striving to create the appearance of “ubiquitous” inventory, in which the shopper never perceives a lack of what he is trying to buy, when he is trying to buy it. Enormous competitive advantage is to be gained by companies with the greatest facility with inventory, as demonstrated by Gartner’s list of the Top 25 Supply Chain companies, year after year.2

The impact of inventory reduction on profits is very direct given that inventory cost is the largest component of working capital. And yet this cannot be done at the expense of customer expectations, so the balancing act remains. To cope, retailers and manufacturers need to:


 

 

Rethink inventory management strategies: To accommodate reconfigured supply chains and multi-channel fulfillment models, companies must fundamentally rethink their inventory deployment strategies, answering questions such as “How much inventory do I hold at the different nodes in my supply chain, given the changing demand patterns from the different channels?” and “How do I adjust the safety stock policies, inventory reordering practices and return policies to cater to the changing customer demands?” These and other considerations are reshaping inventory policy and strategy management.

 

Reinvent inventory management operations: Here, questions to ask include: “Should I change the mix of inventory placed at stores vs. inventory supplied from the distribution center?” “Should I revisit the placement of SKUs based on fulfillment methods?”

  Rewire inventory management systems: The circle of benefits realization is complete only with the successful rewiring of the IT applications that support inventory management planning and operations. Manufacturers and retailers need to address questions like “Are my existing applications capable of supporting different inventory modeling options?” “Does my current suite of planning tools effectively truly enable rewired SIOP (Sales, Inventory and Operations Planning) processes?”


In the end, the journey to creating an adaptive supply chain comes down to creating new channels for growth, deeper penetration of existing markets, different positioning of brand, products, processes, that create competitive advantage. Inventory management is a key component of this exercise.

1 http://www.dcvelocity.com/articles/20121217-interview-with-amazons-dave-clark/

2 http://www.gartner.com/technology/supply-chain/top25.jsp

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