The Important Role of Inventory Management in the Supply Chain

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Managing good customer and supplier relationships is a crucial aspect of effectively managing supply chains. In many cases, this collaborative relationship approach has been considered the essence of supply chain management. At the centre of these supply chain relationships, particularly those involving product flows, is inventory management.

Why Inventory Management is Important for Supply Chain Management

Arguably the most important and difficult role that inventory plays in supply chains is that of facilitating the balancing of demand and supply. To effectively manage the flows in the supply chain, companies have to deal with upstream supplier exchanges and downstream customer demands. This puts a company in the position of trying to create an important equilibrium of fulfilling the demands of customers, which is often difficult to forecast with precision or accuracy, and maintaining adequate supply of materials and goods. This balance is often achieved using strategic information sharing for better inventory management.

Cross function information sharing

To help achieve this balance best, most businesses implement sales and operations planning (S&OP) processes. The fundamental purpose of S&OP is to bring the demand management functions of the company, for example, sales forecasting and marketing) together with the operations functions of the company, for example, manufacturing, supply chain, logistics and procurement, and level strategic plans.

This process often involves extensive discussions about the company’s inventory on hand, in-transit inventory, and work-in-process or sub-assembly inventory. These discussions allow the sales and marketing functions to effectively plan for the period, by gaining a realistic picture of the inventory levels available for sale. Additionally, the operations functions are able to get updated and direct sales forecasting information, which can assist in planning for future inventory needs.

This information should have the ability to shift manufacturing plans or change procurement needs because of the strategic decision to focus on specific units of inventory instead of others based on a combined effort to share meaningful information.

Cross vendor information sharing

This balance can also be achieved achieved by using point-of-sale data for inventory management in the retail industry, and sharing this data with relevant mutually beneficial parties.

When a barcode is scanned during checkout, this captures sales data. This information is not only tracked by the retailer but is also shared with upstream vendors. As items are depleted from inventory, in some cases, both the retailer and vendor work collaboratively to determine when reordering is necessary.

Demand information is tracked to determine when to best place replenishment orders based on the lead time required to get the inventory to the store location. This helps inventory decisions to be used to effectively time when supply inflows are needed to handle demand outflows.

To bring this balancing act into fruition, inventory management solutions is pivotal. Integrated inventory systems can streamline and display meaningful data that can be easily shared to support key decision-making.

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Melanie - Unleashed Software

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.

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