Finding the Best Approach To Inventory Optimization

Careful analysis, clear thinking about the inventory’s mission, and full integration into the overall supply chain will support robust, streamlined inventory operations.

Think Outside Your ERP

Government agencies and their business partners are under increasing pressure to reduce inventory and associated costs while ensuring inventories remain responsive and support expanding mission requirements. But new challenges are impacting the effort to optimize inventory performance: Rising storage and transportation costs; an at-capacity, aging infrastructure; and critical mission requirements that demand the right inventory at the right place at the right time.

Traditional inventory optimization tools such as Enterprise Resource Planning (ERP) are effective for managing high-volume consumer inventories with high turnover ratios. But their success is uneven when addressing large government organizations with less homogenous inventories, unique mission requirements, less predictable demand, and a mandatory need for higher levels of service. Many of these organizations developed mission-focused inventory strategies that tailor their inventory solutions to improve service, reduce costs, and align the supply chain to support their goals.

In its study, “Think Outside Your ERP: Mission-Focused Inventory Strategies,” Booz Allen Hamilton introduces this innovative way of understanding and segmenting inventories to build customized solutions. It explores why traditional approaches to managing inventory often fall short and uses case studies to show how more effective strategies can be developed.

Key to finding the best inventory optimization approach is to first understand the role of inventories in supporting an organization’s mission. The report outlines four basic roles, each requiring a customized inventory stocking and replenishment strategy: Consumer/retail inventories; schedule inventories; emergency inventories; and break/fix repair parts inventories.

The report details how an organization then aligns its inventory strategy with its mission to help increase service-level performance and reduce costs. But to achieve ultimate success, the strategy must further target the specific roles and geographies the organization serves.

Although inventory optimization is important, the report emphasizes that it’s just the first step in a broader supply chain strategy that includes planning for sales and operations; optimizing supplier performance; and leveraging various strategies for deployment and replenishment. Careful analysis, clear thinking about the inventory’s mission, and full integration into the overall supply chain will support robust, streamlined inventory operations.

Principal Ray Haeme and associate Margo Cohen led the team that created the Booz Allen report.

study posted June 1, 2009