Inventory Optimization is often misunderstood due to the ‘creative marketing’ of many software companies that points people in the wrong direction. A well-known supply chain guru wrote an article recently stating that inventory optimization is dead. The reality is that inventory optimization should be a collection of math algorithms applied together to maximize your profit potential while meeting service goals for each product / location. The problem isn’t that this is new math; the issue is that enough people haven’t thought about the problem as a math problem. Most software isn’t written to handle the complex math fast enough to deliver dynamically updated answers to questions like ‘when should I order’ and ‘how much inventory should I carry?’
To ‘Tighten the Links in Your Chain™’, you need to know your weakest links. To identify your weakest links preventing real inventory optimization, you’ll need a collaborative team approach that includes senior management, the inventory management team, and ideally, your suppliers (vendors). You also want a proven model of a company that has focused on inventory optimization and collaboration for many years.
If the Rumors are True…
A lot has been said about Steve Jobs’ personality during his lifetime and after his passing. However, with all of the misconceptions and misunderstanding surrounding his interactions with employees and partners, he realized the importance of teamwork for the current and future success of his baby. When asked in 2003 during a “60 Minutes” interview how he views business, he discussed The Beatles’ relationship with one another, saying “That’s how I see business: Great things in business are never done by one person. They’re done by a team of people.” Delivering superior results requires collaboration; this holds true for designing the next innovative product sensation or getting that product into the hands of clamoring consumers. Inventory optimization is a key component of delivering successful results in the retail business, and collaboration is the cornerstone of IO strategies.
Internal Collaboration Helps Inventory Optimization
The argument can be made that Steve Jobs believed inventory optimization was more important than design innovation for the future success of Apple; this can be seen in his move to name Tim Cook (a supply chain guru) as his heir to the throne. He leaned heavily on Cook’s expertise the last few years of his life to successfully roll out massive new product launches. This internal collaboration was critical to delivering on their strategy. It took management support, staff teamwork, and excellent communication between departments. This combination made Apple greater than the sum of its parts; Jobs alluded to the importance of this and also simultaneously making each individual better at the same time in his interview. This internal collaboration relies on honest and open channels of communication; Jobs was a little more abrasive than some people could handle, but that was his form of honest and open communication.
Accurate Demand Forecasting (not Sales Forecasting – learn why) is a critical component to Inventory Optimization. Implementing an accurate demand forecasting solution has one of the highest ROI of any retail technology.
External Collaboration for Inventory Optimization
A recent study conducted by APQC highlighted the importance of partnering with suppliers. For many businesses external collaboration is much more difficult than internal collaboration. For one thing, you have much more control of your internal environment, processes, and collaborative efforts. To maximize your external collaboration, look for common ground and ways to enhance your communication. The old adage “all publicity is good publicity” also holds true for communication with partnering suppliers. Walking the fine line of how much of your trade secrets you want to discuss with outside parties is a challenge. When you examine the case of Apple, it is a glaring example of this challenge. Each new product launch sparks a hotbed of speculation from competitors, financial analysts and the public. Finding partners you trust and are able to foster superior collaboration and communication with will go a long way to helping you reach your goals. During each product launch, Apple has to ensure its suppliers are on target and keeping their lips sealed. They want to control every aspect of the launch and delivery; this exceptional coordination connects their internal and external collaboration. Connecting the dots (as Jobs loved to say) is what Tim Cook did well for Apple’s supply chain. Now, it’s easy to see why Jobs made Tim Cook the crown prince.
Why wait on the next Steve?
Are you ready to ‘Tighten the Links in Your Chain™’? Collaboration may be a key link missing in your inventory optimization methodology. Contact Us. to discuss how your internal and external collaboration strategies can improve your inventory optimization resulting in better product/ location service levels attained, lower operating costs and higher sales.
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