Increasing inventory levels is seen as a trade-off with service and efficiency levels; we find that a win-win-win is achievable. The key: Have the right inventory in the right place at the right time and gain a predictive view of demand to optimize your schedules to reduce inventory while increasing service and efficiency. Lisa Anderson of LMA Consulting discussed the critical importance of inventory in achieving business success with Inbound Logistics’ Good Question section in answering the question “What is One Supply Chain “Trade-off” That Is Actually Not a Trade-off?
As companies want to achieve a win-win-win in achieving customer value, profit, and cash flow, they are increasingly turning to SIOP (Sales Inventory Operations Planning) processes to stay ahead of changing business conditions while aligning and optimizing demand and supply. The process must start with customers and gaining a better perspective into their demand plans and sales forecasts. These forecasts are turned into capacity and operational plans so that alternate options to best fulfill the demand plan can be evaluated and optimized for bottom-line results.
The benefit of SIOP is that you don’t have to choose one benefit such as customer service over another such as efficiencies and margins. This is especially critical in today’s marketplace as companies must continue to deliver superb service levels while reducing costs and inventory levels to meet business growth and profitability goals. For example, a building products manufacturer struggled with service levels in the low 40%s. Customers were unhappy, yet they couldn’t afford to increase costs and inventory levels to address the issue. Instead, they focused on upgrading their SIOP and planning processes so that they gained a better view into their sales forecasts and therefore received the “right” materials just in time, produced the “right” inventory and distributed it to the “right” place at the “right” time. Customer service levels rose to the 90%s; however, because they could plan in advance and optimize their supply plans, the costs remained intact and were able to reduce inventory levels to gain accelerated cash flow.
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Revving Up Sales and Maximizing Customer & Product Profitability with SIOP