Five Inventory Management Best Practices for Leaders to Optimize Supply Chain, Improve Service Levels, and Reduce Costs

How Do Your Operations Measure Up?

Inventory optimization strategies and practices can vary dramatically from company to company and even between divisions and distribution centers within a company. Those who manage inventory most effectively can provide superior service levels – which their customers take note of – at a lower overall cost to serve.

Here’s a quick overview of some leading practices we’ve helped clients implement.

5 Best Practices of Inventory Management

1. Superior Performers Review Their Inventory Model Regularly

   Leading companies review their organization’s inventory model periodically – as often as every three months – even if it is to confirm that no changes are required. The exact frequency varies based on inventory volatility and velocity. For companies shipping seasonal goods direct-to-store and direct-to-consumers – mainly retail and wholesale distribution businesses – more frequent, monthly reviews might be necessary. Such reviews enable distribution operations to respond cost-effectively to changes in customer demand, planned promotions, unexpected supply chain disruptions, and other occurrences.

2. Leaders Respond Quickly to Any Channel Disruptions or Customer Issues

   Responsiveness starts with inventory visibility and alerts that notify managers of problems that must be addressed. But it goes further than that. Industry leaders leverage the capabilities of inventory management tools to run “What if?” scenarios and evaluate potential solutions to issues before they occur. Such practices enable companies to respond proactively to future events, optimize planning horizon changes, and better meet customer service level expectations.

3. Operations Leaders Are Fanatic About Optimizing Inventory Locations

   Identifying optimal inventory locations in today’s dynamic economic environment requires a multi-dimensional approach. Periodic re-slotting exercises improve labor efficiency at the pick face. Leaders use sophisticated multi-echelon inventory optimization tools at a higher level to establish optimal inventory policies based on SKU and location across the supply chain. Differentiating volume by customer, location, industry vertical, and other factors better positions inventory to support order fulfillment and improve service levels.

4. Top Inventory Managers Use Safety Stock Strategically

   Safety stock will always be needed at different points in the supply chain to manage demand volatility. Leaders deploy advanced postponement strategies at critical nodes to delay committing inventory until the latest possible moment.  Such an approach extends pull system capabilities to enhance demand responsiveness further and reduce obsolescence.

5. Best-in-Class Companies Assign Responsibility

   No business area performs well unless someone takes responsibility, especially for processes that cross departmental boundaries. Leading companies assign a single inventory owner at the enterprise, division, or business unit level. A single owner ensures that the right contributors, inputs, and analytics are built into inventory management practices to ensure repeatability, scalability, and continuity. Sales and marketing, in particular, must be engaged and share ownership for service and cost performance. These are just some of the leading practices of inventory leaders that drive superior customer service levels and lower management costs.

Effective inventory management is pivotal for companies aiming to achieve superior service levels while minimizing operational costs. Adopting these practices enables companies to maintain a competitive edge through efficient inventory management.