Demand-Driven Inventory Optimization and Replenishment: Creating a More Efficient Supply Chain

CHAPTER 4

How Does Days of Supply Wreak Havoc on the Supply Chain?

I have been surprised at the number of times “days or weeks of supply” comes up during a discussion about supply chain efficiencies. Going all the way back to my first attempt at getting an order correct I was instructed to keep in mind “the weeks of supply” rule of thumb. One of the most enjoyable experiences (read funny) was listening to an inventory control manager talk about how he would “ratchet down days of supply” at the end of the year to make the balance sheet and income statement more acceptable. This executive talked about the fine line he walked between lost sales and reduced inventory. Anyone who has worked in supply chain management has been in those shoes. In order to meet organizational performance indicators an inventory control manager has to face crippling customer service issues over the short term to get inventory under control for a finite period and then let it bounce back to “normal.” The result is a temporary fix to make things appear acceptable, but the underlying problem continues to limp along.

That problem is inventory placement based on rules that are good for only about 10 percent of the products.

As we saw in the previous chapter, enterprise resource planning (ERP) and supply chain management (SCM) systems are built using shortcuts to overcome the absence of relationships between links in the supply chain. There are assumptions put in place like always having 100 percent service ...