Managing Supply Chain Inventories

One of the most important challenges facing supply chain managers is the effective control of inventory. Supply chain inventories consist of the raw materials, components, assemblies, and finished goods necessary to support demand throughout the supply channel pipeline. At the core of inventory management resides a fundamental dilemma. When it comes to the timely fulfillment of demand requirements, inventory is necessary and useful; however, too much or the wrong inventory at the wrong place becomes a significant liability, a huge financial millstone around the neck of the enterprise, reducing profitability and draining the vitality of strategic supply chain initiatives targeted at increasing competitive advantage or exploring new markets. Inventory ties up capital; incurs carrying costs; needs to be transported; requires receiving, material handling, and storage; and can become damaged and obsolete over time. On the other hand, the value of a properly managed inventory exceeds its cost. Product availability at the time, location, quantity, quality, and price desired by the customer not only provides immediate profits but also secures long-term customer loyalty and brand leadership. When it is effectively controlled, inventory management enables the realization of channel marketing, sales, and logistics strategies and provides the lubricant for the smooth flow of product and service value from supplier to the customer.