Inventory Optimization: Balancing the Asset versus Service Tradeoff

KEY FINDINGS

Inventory Optimization Strategy Design and Continuous Enhancement

• A new inventory optimization effort must be defined, supported, and enforced by senior
management, since the effort will touch all aspects of how an organization does business.
• A key component of inventory optimization is a periodic evaluation of the supply chain design to
address any operational or financial inefficiencies of the physical network and to ensure sufficient strategic capacity to support business requirements.
• Since improvement of customer service is a primary objective of inventory optimization, it is
imperative that service levels are maintained or improved during the process of transformation to ensure buy-in of stakeholders and momentum for the initiative.
• Inventory optimization must entail a significant change in replenishment speed and efficiency
achieved through deliberate partnerships with internal and external suppliers. Implementation of Inventory Processes and Procedures
• Inventory optimization must be supported by a well-defined order fulfillment process, where
process mapping identifies critical performance gaps for strategy definition and assignment of process ownership drives accountability and focus.
• Supplier processes need to be streamlined for efficiencies and integrated with internal processes to
achieve common business goals.

• Incremental technology should be added to stable planning processes where measurement and
testing have demonstrated functional gaps.
• Inventory optimization technology should be automated and embedded into the planning process
to allow for continual maintenance of an optimal inventory mix.
• Maximize the effectiveness of inventory optimization technology through training and education
programs, setting expectations, and providing context to those using the results.

• Inventory optimization must be monitored via metrics on supplier performance,
customer service, and internal assets, where adaptable strategy and metrics allow for continuous improvement.
• The success of inventory optimization is primarily determined through the quality of the
people involved in the process; hence, every attempt should be made to acquire, retain, and enhance talent with a stake in performance and process improvement driven down to individual incentives.

• Deere & Company, Commercial & Consumer Equipment
• Office Depot, Inc.
• Stryker Instruments