Amongst the many variables in running a Supply Chain, the one certainty in FMCG, Pharmaceutical and Agri businesses is that inventory is solely in the eye of the beholder. Nobody else but Supply Chain actually sees the full unedited and excuse-free realism on inventory and what this stock is doing (always a negative effect) to overall company costs and service.

I hear lots of Management Accountant types shouting that they know what is going on better than anybody. Complete tosh. They certainly should and do know the total value and the weeks or months cover but that does not begin to tell the full story. Knowing your working capital is below, on or above target is a necessary piece of data for reporting requirements but what information and more importantly, what actions might be prudent and productive?

The Sales & Marketing guys know everything about inventory levels, not! They know and react when something is out of stock but do not care about the underlying causes as it is usually their own woeful forecasting and lack of innovation delivery rigour. Their view of inventory is commonly restricted to what happened to upset the monthly numbers rather than what is possible with some forward looking collaboration and understanding.

Is anyone actually checking what is out of stock or overstocked, what this means now and more importantly, what this means for the future? The future for sales certainly but also the future for demand planning, supply planning and production facilities. One thing is certain, when you do not have full visibility and modelling capability of your inventory chain then you will have too much and what you do have will not be aligned to market demand.

Without close attention to such detail you will find inventory follows the JIC or “just in case” principle. Stocks slowly creep up along the chain as non-analytically derived contingency appears. Sooner or later you end up with more stock than Marco Pierre White can shake a cinnamon stick at.

Inevitably, this excess is not helpful and actually hinders the capability to supply the demand. A continuous check and challenge of inventory levels along the chain (including seasonal trends) is required to ensure the correct stock is being held for different SKUs. Not brands or categories or ranges but the individual SKUs shoppers actually want to buy now; not tomorrow or next week.

A majority of the commonly used IT tools do not actually permit meaningful analysis of future possibilities. They can certainly tell you what has taken place in terms of forecast accuracy, bias, inventory level and associated value, out of stocks, service levels etc, etc but they are not designed to help you model future possibilities.

Ok, so what can you do? You can get your best spreadsheet people and throw reams of data at them but that will be wasteful and futile. What you could do is look at a specific tool for modelling your future possibilities, eg see an example here.

If you have applied each and every Supply Chain improvement initiative you can find and still need cost savings to satisfy HQ and shareholders then inventory modelling is where significant benefits to cost and service remain unexploited.

Image courtesy of Sira Anamwong at freedigitalphotos.net