The role of inventory in the supply chain is significant because the entire function of a supply chain is to move products and supplies, from one place to another while adhering to specific time frames.
Supply chains consist of more than just a few functional teams. They encompass the areas of purchasing, manufacturing, logistics, marketing, sales and management. All of these areas work to meet consumer demand or alleviate any shortfalls that exist between supply or demand.
Businesses may take advantage of bulk-buy discounts or seasonal supply-side surplus to smooth peaks in demand or to guard against off-season price increases. However, the cost to hold and store inventory stock can counteract any savings made.
Procurement teams deal with upstream suppliers and downstream functional teams. They endeavour to guarantee material availability for processing operations while also trying to keep management and financial teams happy by avoiding accumulation of excessive inventory stock.
The goal of production and processing operations is to use available resources in the most efficient way. Operations team can obtain direct sales forecasting information from sales, distribution and even point of sales to assist in planning for future inventory needs.
Sales information and seasonal peaks can result in shifts in manufacturing schedules and a focus on specific inventory units may also alter procurement needs.
Distribution seeks to bring products to market via the most effective sales channels. Vendors and retailers need to work collaboratively to determine when reordering is necessary to replenish the depleted inventory at the distribution centre level.
End-to-end supply chain performance is an interrelated, collaborative task where the management of customer and supplier relationships is critical to effectiveness of supply chains. These relationships rely on the flow of inventory movement and storage.
Any inventory stock sitting in the warehouse can deteriorate and become obsolete. Distribution centres need to only replenish inventory stock when completely necessary and not as a routine replacement.
Point of sales
Point of sales data provides perpetual inventory management at the retail end of the supply chain. Indicating when another unit of inventory has been sold, the information is tracked by the retailer and can also be shared with upstream sales, distribution, production and procurement teams. This is a balancing of supply and demand because demand information is tracked to determine when to best place replenishment orders while factoring in the lead times necessary to get the inventory to a store location.
Shareholders want a return on investment, Board of Directors want a reduction of inventory stock to free-up capital. Management focuses on achieving an optimum service level with the help of a reliable sales data to maintain a high level of customer satisfaction.
An efficient supply chain therefore, relies on the management of complex dependencies between teams, departments and partner companies across all areas. Efficient performance of the entire supply chain becomes a principal objective to all stakeholders, particularly in times of a fluctuating, seasonal or unexpected high consumer demand.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.