Ebb and Flow for Inventory Part 2: Don’t Overlook this Sales and Operations Planning Opportunity
In Part 1, we examined how to decide between front-loading inventory or receiving it in a just-in-time manner for peak periods. This article goes a level deeper by addressing what it takes to make advanced inventory optimization practices more successful from an operational perspective. The place to start is assessment of collaboration across supply chain functions.
It’s here, the day of the monthly Sales and Operations Planning (S&OP) meeting. The inventory analyst has a seat at the table with colleagues from distribution, finance, sales, marketing and transportation.
The inventory analyst brings a solid plan. It takes into account seasonal demand profiles by SKU, promotions, upcoming peaks, and service-level targets by channel. Likewise, the distribution manager shows up with a labor plan, the transportation leader is prepared to discuss capacity constraints, and so on.
At the meeting, two inventory problems are raised. The first comes from the distribution manager. She says that she doesn’t have the space or labor resources to accommodate the number of items that are scheduled to be delivered during the next quarter. The second challenge comes from the financial analyst. He says that interest rates are rising, and, in response, the company needs to aggressively reduce excess inventory.
The conclusion? The inventory analyst must undertake a rapid series of actions to change the inventory plan.
In many cases, changing the buying system to do something different, such as ramping up or slowing down, is a manual, tedious process. While the financial analyst looks at inventory from a broad, macro perspective—e.g., reduce inventory by a certain overall amount—the inventory analyst must make changes sku by sku.
Align S&OP for Action
A more efficient approach is to align inventory planning with S&OP. Why alignment? When inventory planning is detached from S&OP, it takes more time and people than necessary to solve problems and enact changes. Instead of changing parts and pieces of the inventory plan manually, process alignment at the sku level can result in the ability to execute inventory changes in a consolidated (aggregate) motion.
Aligning S&OP across supply chain, marketing and inventory functions helps identify gaps between unexpected costs so shortfalls can be addressed quickly. This translates into fewer disruptions and more effective responses to marketplace shifts and changes. Also, when S&OP stakeholders are closely aligned from organizational and technology perspectives, execution of a decision is a direct and seamless consequence of the S&OP process.
Bottom-Line Benefits of Rapid Action
With this systematic approach to alignment, a company can operationalize inventory strategy changes with the least waste of time and effort. And at the same time, preserve inventory accuracy and protect profitability. Through shaping inventory plans to align with operational constraints and available resources—converting macro-level requirements for inventory adjustment to execution at the sku level—the company enhances the customer experience while protecting the business bottom line.