Few companies ready for demand-driven inventory management, says ...

Tekrati Industry Analyst Reporter - Belmont,CA,USA
Distribution-intensive businesses are changing radically, yet inventory
management practices at most companies are not keeping up, according to a
...

Distribution-intensive businesses are changing radically, yet inventory management practices at most companies are not keeping up, according to a multiclient study published by Industry Directions. Companies recognize that they must shift to a demand-driven approach to inventory management to meet increasingly volatile consumer demands, however in most cases their inventory management practices remain more traditional and supply-intensive. The study was sponsored by vendors HighJump Software, Logility, Manhattan Associates, and ToolsGroup. Free report.
The analysts found that only a fraction of companies have an inventory management structure appropriate to meeting the demands of dynamic, global, multi-tier supply chains.

The study underscored the difficulty of getting inventory into place in time to meet rapidly changing, dynamic market opportunities for those using traditional practices and systems. By far, customer service is the highest priority respondents cited for their inventory management strategy. Further, the #1 metric companies use to manage inventory management performance is stock-outs.

Yet, shifting to a customer-centric focus can take a toll. Nearly three-quarters of respondents (73%) said that expediting products is a common practice for them. At the same time, an overwhelming majority, 83% of respondents, said that overstocks were common. Meanwhile, of those who said that expediting is common, 40% say that this issue is on the increase. In a group of top performers, 50% say expediting is not common and 27% say overstocks are not common.

"Traditionally, most companies have built their technology and process infrastructure so that they can push inventory through their supply chain and drive down cost," said Julie Fraser, Principal at Industry Directions. "Demand-driven inventory management logically calls for just the opposite � that items be pulled through distribution and production and from suppliers. The good news is that companies realize they have to operate in a demand-driven fashion, and a sub-set of the respondents to this study are well on their way to figuring out how to transform their supply chain to support effective and profitable operation."

The study found forecast accuracy continues to be a challenge for most companies, who report 70% or less forecast accuracy. While demand variability limits forecast accuracy increases, many have the opportunity to improve forecast accuracy by using more partner data and more frequent reviews. Complex and long supply chains also lead to volatility in lead times and even greater challenges in matching supply with demand. Most companies are not reviewing performance with partners or reviewing their distribution and supply networks frequently enough to adjust quickly when problems arise.

While the majority uses a variety of supply chain and logistics planning applications, fewer use software that would help them respond, fulfill, or cover for uncertainty. Some of the applications most commonly cited in plans to purchase do address these issues: performance dashboards, alerts, transportation management, inventory optimization, distribution planning and dynamic planning.

About the study

The Industry Directions multiclient study, "Demand Driven Inventory Management Strategies: Challenges & Opportunities for Distribution-Intensive Companies", is available as a free download, registration required.