In terms of inventory planning and service levels, companies can be broadly categorized into three groups. The worst-performing companies have excessive inventory but poor customer satisfaction and low service levels. On the other hand, the best companies maintain minimal inventory while achieving high service levels. This is straightforward: top-performing companies have strong planning capabilities, understand customer demand, and therefore deliver excellent service. They also know what customers don’t want, allowing them to keep inventory at a minimum. Conversely, the worst companies lack this insight, leading to both high inventory and poor service.
In between these extremes are companies that operate under a "two-high" model—high service levels combined with high inventory. Many well-established firms fall into this category. These companies often have good management practices and clear performance metrics, but the way these metrics are set and executed can lead to inefficiencies. For example, while overall service level targets may be set at 95%, specific goals for key customers or products might be higher, such as 98%. However, when these products are also sold to general customers, the system ends up overstocking to meet the higher target, which results in unnecessary inventory buildup.
This issue stems from inflexible supply chains that struggle to differentiate services based on varying customer needs. The same infrastructure, processes, and systems are used across all operations, making it difficult to tailor service levels without increasing inventory. As a result, companies often end up maintaining high stock levels just to ensure that service targets are met.
In industries like industrial products, where there are many product variations and small batch sizes, achieving high service levels becomes even more challenging. A company may set a strict service level of 98% for critical customers, meaning that in 98% of cases, orders must be fulfilled within a short time frame, such as four hours. Meeting this standard requires significant inventory investment, especially when the same materials are used across multiple products.
Moreover, some companies find it hard to reduce inventory because doing so could jeopardize their service commitments. For instance, an expensive component that is only needed once every two years might be recommended for reduction by inventory optimization tools, but cutting it could risk failing to meet service level targets for key clients. This creates a dilemma where inventory is maintained not for efficiency, but for reliability.
Another challenge lies in setting realistic inventory targets. While service level goals are well-defined, determining the right inventory levels is complex. Companies often rely on historical data and guesswork, leading to suboptimal decisions. When issues arise, service levels are prioritized over inventory efficiency, resulting in a continuous rise in stock without corresponding improvements in service.
Over time, this dynamic leads to a cycle where inventory increases to justify previous shortages, and service levels remain unchanged, even if they aren't meeting the original targets. As a result, service levels tend to improve, while inventory levels steadily worsen.
Liu Baohong, a renowned expert in supply chain management, has written extensively on this topic. His work highlights the need for better alignment between inventory planning and service delivery. With over a decade of experience in the U.S., he continues to support companies in improving their procurement and supply chain strategies. For more insights, you can reach out to him via email or visit his website for upcoming training sessions.
AC DC power adapter 48v,48v power supply adapter,universal power adapter 48v,48v dc adapter
ShenZhen Yinghuiyuan Electronics Co.,Ltd , https://www.yhypoweradapter.com