Complexities of Inventory Management
Inventory planning and management have taken a whole new form in the COVID era. Optimal inventory planning and management were never easy, but the challenges have now increased many-fold. As organizations changed their inventory strategies, many of them moving from just-in-time to just-on-case, the associated planning and management challenges also need to be addressed.
This post is the first in a series of posts focused on Inventory planning and optimization. In this post, we introduce some key challenges that inventory management functions run into. In subsequent posts, we will explore how analytics can help address these challenges and we will refer to this article in those subsequent posts.
Levels of Inventory Planning
I like to classify supply chain planning into three key buckets:
- Strategic planning
- Tactical planning
- Operational planning
To understand the challenges that inventory planning and management run into, we will use these three planning buckets. Let us explore the inventory planning-related challenges at these three levels:
Strategic Level
We talk about supply chain challenges, or the supply chain imperative of the right product, right place, right time, right quantity etc. but at the end, it is all about customer experience. And the role planning at this level plays is to ensure that customer gets what they want when they want and in the quantity they want. So strategic decisions related to inventory planning are:
- Where should we place SKUs and in what quantities?
- What should be an assortment strategy? SKU portfolio?
- Warehouse footprint-are warehouse locations optimal? Is the capacity sufficient?
- Synergies between manufacturing and warehousing
- Product design strategy to reduce inventory (like delayed product customization)
Tactical Level
Tactical planning is a bit more granular than strategic decision levers. Here, the paradigms start getting a bit more detailed, like:
- Production volumes at detailed levels and capacity planning from both manufacturing and warehousing perspective
- Resource deployment and asset evaluations
- Supplier management
Note that these are examples and not an exhaustive list. The idea of to illustrate the various layers of inventory planning and associated complexities.
Operational Level
This is the level most inventory planners are familiar with- the “working in the weeds” level. At this level, the planning timeframe is short, and planning becomes much more granular. Examples of planning at this level are:
- Shortages
- Overstocks
- Supplier performance
- Inbound fulfillment tracking
- Forecast modifications
Key questions asked across all the three levels have been shown in figure 1.
Figure 1: Three levels of planning decisions
Subsequent articles in this series will refer to this post, as we explore the role analytics can play in managing these planning levers across these three layers shown in figure 1.
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