In today's business environment, fast-paced and highly competitive features are a major feature. With the development of digitalization, enterprises are facing many challenges, among which the problem of supply chain inventory management is a hidden big problem.
Many companies are suffering from poor inventory management, which leads to capital occupation due to inventory overstocking, inventory shortages affect order delivery, customer satisfaction plummets, and market response becomes sluggish. So, why inventory management? The reason is simple, because effective inventory management is not only the key to controlling costs, but also the guarantee of improving customer satisfaction and market responsiveness. Moreover, inventory management involves different types of inventory and needs to be managed by category. So, what are the supply chain inventory management strategies?
In this article, we will discuss the multiple roles of inventory management, different types of inventory, and advanced supply chain inventory management strategies, hoping to provide you with a comprehensive inventory management perspective.
1. What is the role of inventory management? What inventory types are there?
Inventory management is an indispensable part of the logistics system and plays a diverse role in supply chain management. Effective inventory management is critical to achieving supply chain goals and involves precise planning, professional management, and tight control of inventory.
1. The role of inventory management
The role of inventory management is reflected in several ways:
- Maintain production stability: Inventory management ensures the smooth operation of production lines and the continuous employment of labor, which is closely linked to the efficient use of equipment. While modern production technologies can respond quickly to market changes, there are still many situations where inventory is relied upon, such as pre-production and storage by toy factories for peak demand for Children's Day.
- Balancing the difference between supply and demand: The fundamental purpose of inventory management is to achieve a balance between supply and demand. Ideally, companies would be able to connect orders to supply instantly, but in reality, due to the volatility of demand and the continuity of supply, inventory often acts as a buffer to meet the challenges of timeliness in production or procurement.
- Establish expected inventory: In order to meet anticipated or planned demand, businesses establish expected inventory. For example, when a new product is introduced to the market, due to the high cost of promotion, enterprises need to reserve inventory in advance to quickly respond to market demand for new products, so as to avoid affecting customer impressions due to insufficient supply.
- Investment inventory: In some marketing strategies, companies may increase the value of products by restricting supply, or build investment inventory to adapt to market changes. For example, some merchants foresee the rise in the price of goods such as Moutai, and will hoard in advance and sell at the price.
While pursuing a high level of customer service, companies need to find a balance between service levels and cost investment. There is often a contradiction between the two: in order to provide excellent service, companies may need to maintain a high level of inventory, which will undoubtedly increase costs; In order to control costs, there may be a risk of service levels declining. Therefore, companies must carefully balance the relationship between the two, and strive to meet customer needs while reasonably controlling inventory costs to achieve the optimal balance of operational efficiency and economic benefits.
2. The type of inventory
Inventory exists in many forms in the supply chain:
- Circular inventory: This inventory is determined by the company's ordering policy, and its size is affected by both the quantity and frequency of orders. It embodies the regular replenishment activities that businesses carry out to meet their daily needs.
- Safety stock: Also known as buffer stock, it exists to deal with uncertainty in the supply and demand process. Safety stock is key to ensuring that customer needs are consistently met, and is directly related to the level of service you provide.
- Expected inventory: This refers to inventory that is prepared in advance based on known demand, such as demand for planned demand, new product launches, promotions, or seasonal items. The management of anticipatory inventory is demand-oriented, with the aim of being able to respond quickly when demand is realized.
- Mobile inventory: refers to inventory in transit, which is in a state of movement between suppliers and customers, and each shipment can be identified and tracked individually.
- Speculative inventory: This type of inventory is built for investment purposes and is commonly used for raw materials that businesses buy in advance for future production needs. Speculative inventories are supply-oriented, and businesses determine their size by anticipating market changes.
2. Supply chain inventory management strategy
For a long time, in supply chain management, inventory was often seen as an element independent of the others, each with its own independent inventory control strategy. This decentralization inevitably leads to distortions in demand information, the so-called demand amplification phenomenon, which is the "bullwhip" effect in the supply chain, which increases supply and inventory risks for suppliers.
However, in recent years, some new supply chain inventory management methods have emerged, such as Vendor Managed Inventory (VMI) and federated inventory management. These strategies break the traditional siloed model, effectively control the inventory risk in the supply chain through integrated management ideas, adapt to the requirements of market changes, and represent a new trend of inventory management.
1. Supplier management inventory
(1) VMI's core philosophy
VMI is a decision-making agency model for the integrated operation of the supply chain, aiming to minimize the cost of both parties. Under this model, the customer delegates inventory decision-making power to the supplier, who exercises the inventory decision-making authority under a common framework agreement and promotes continuous improvement in inventory management through continuous monitoring and correction. VMI is conceived as a strategy for cooperation between customers and suppliers to achieve an increase in the level of product availability and a reduction in costs by managing inventory within a framework of mutually agreed objectives.
The implementation of VMI is based on the management of inventory by the supplier with the authorization of the customer, including the setting of inventory levels, the determination of replenishment, and the possession of inventory control. This model helps to break the traditional independent inventory management model and realize the optimization of supply chain inventory management. VMI not only reduces inventory levels and costs, but also improves service levels for retailers, improves cash flow, provides transparency into changes in demand, and improves customer service. The VMI management mode is shown in the following figure:
(2) VMI implementation steps
An effective implementation of VMI consists of the following key steps:
- Establish a cooperation agreement
Suppliers and retailers work together to establish terms and conditions that define key elements such as transfer of ownership, credit terms, ordering responsibilities, messaging, and performance evaluation.
- Build an integrated information system
In order to effectively manage inventory, suppliers need to obtain timely information about customer needs. This requires suppliers to connect the retailer's POS system with its own information system through a technical interface to achieve real-time information sharing.
- Determine order and inventory control parameters
Together, the two parties determine the information and parameters required for order processing and inventory control, such as order points and minimum stock levels, and establish a standardized order processing process.
- Continuous improvement mechanism
During the implementation of VMI, both parties should continue to cooperate to find room for improvement, and constantly adjust and optimize the target framework to achieve continuous improvement in inventory management.
2. Joint inventory management
(1) The basic idea of joint inventory management
Jointly Managed Inventory (JMI) is an inventory management model developed on the basis of the VMI concept, which emphasizes the balance of rights and responsibilities and the sharing of risks between upstream and downstream enterprises in the supply chain. JMI represents a new type of corporate partnership, based on strategic supplier alliances, which promotes mutually beneficial cooperation between enterprises at all nodes of the supply chain.
The core goal of JMI is to solve the demand amplification phenomenon caused by the independent operation of each node enterprise in the supply chain system, and improve the synchronization degree of the supply chain. This management model requires the involvement of every inventory manager in the supply chain to jointly develop an inventory plan to ensure consistency in demand expectations and eliminate demand amplification. In JMI, inventory management is no longer an isolated process, but becomes a link between supply and demand and a center of coordination.
JMI further integrates the supply chain system management into two coordination management centers upstream and downstream, and participates in the formulation of inventory plans from the perspective of the supply chain as a whole, realizes the synchronous operation of the supply chain, and reduces inventory fluctuations caused by uncertainty and demand information distortion. JMI implements a balance mechanism of risk, cost and benefit in the supply chain, establishes a risk prevention and sharing mechanism for inventory management, and a benefit distribution mechanism corresponding to risk cost, so as to effectively motivate both supply and demand sides and avoid short-sighted behavior and the emergence of local optimization in the supply chain.
(2) Joint inventory management implementation strategy
Strategies for implementing JMI include:
- Establish a supply chain coordination and management mechanism, clarify the goals and responsibilities of all parties, establish cooperation and communication channels, form a common vision, and establish coordination and control methods and benefit distribution and incentive mechanisms.
- Establish information communication channels, improve the consistency and stability of demand information, reduce the distortion of demand information, and ensure the smooth and accurate flow of information in the supply chain.
- Give full play to the role of the third-party logistics system, and improve the agility and coordination of the supply chain with the help of the professional services of the third-party logistics company.
- Choose the appropriate joint inventory management model, choose the centralized inventory mode or no inventory mode according to the specific situation, optimize inventory management, reduce costs and improve efficiency.
By the way, I would like to share with you the integrated management platform architecture of the supply chain control tower designed by Finefine, which I personally feel has great reference value:
The Supply Chain Control Tower Management Center consists of four modules:
- Supply chain data master control platform
This module monitors key indicators of the whole supply chain from the aspects of procurement, production, logistics, marketing, and customers. From assets to receivables and payables, risk fluctuations can be comprehensively displayed and monitored.
Realize the monitoring of key indicators of the whole supply chain of the supply chain management platform, the perception of capital risk fluctuations by the supply chain management platform, the 3D perspective drilling of the supply chain management platform, and the perspective of the model.
- Procurement data control platform
The module monitors the implementation of each node according to the procurement process, obtains a transparent information flow from the initial order to the delivery information, and grasps the financial information of the supply chain in real time to ensure the quality of goods.
So as to achieve procurement management, procurement process node monitoring, procurement analysis, real-time analysis of procurement amount, supplier management, supplier collaboration and quality management.
- Inventory data control platform
The module visualizes the color gradient of the map and the data carousel, showing the details of the group's warehouse distribution, operation management, inventory security and other related details. Realize the visualization of warehouse managementKanban Group's warehouse distribution, warehousing HSE safety control, and warehouse actual volume control
- Sales data control platform
This module focuses on the sales and profit of core products: from the perspective of sales price, market popularity, etc., analyze the comprehensive market performance of products; From the perspective of the number, distribution and concentration of stores, the distribution of downstream channels in the country is analyzed. Realize the analysis of core sales indicators, the analysis of comprehensive market performance of products, and the analysis of the national distribution of downstream channels.
In addition, the supply tower management solution provides a series of inventory analysis kanban templates created with FineReport, including inventory change analysis kanban, inventory turnover kanban, inventory structure analysis kanban, and inventory age analysis kanban. Through these inventory analysis dashboards, manufacturers can understand the inventory situation in real time and adjust their purchasing or sales strategies in a timely manner.
3. Summary
As the concept of supply chain management continues to evolve, enterprises are increasingly aware that inventory is not only a reflection of cost, but also a source of value creation. By adopting advanced strategies such as vendor-managed inventory and joint inventory management, companies can respond more accurately to market changes, reduce inventory risks, improve service levels, and ultimately maximize supply chain efficiency and cost-effectiveness.
If you want to know more about the solutions for manufacturing supply chain management, you can click the link below to get the "Supply Chain Inventory Analysis Solution" and get suggestions for manufacturing supply chain management solutions! https://s.fanruan.com/ebx2u "Links"