| A | The role of inventory is a critical and strategic one in SCM, as it has a huge impact on whether a manufacturer, OEM or distributor can fulfill orders quickly enough; or on the contrary, whether they have too much inventory which represents waste and loss. Poor inventory management can and has put companies out of business. For those reasons, manufacturers must have a tight grip on demand signals to know how much inventory they need, as well as where it should be located and who will provide it. Inventory management is an exercise in balancing risk. For example, if you are a make-to-stock manufacturer, the assumption is that there is a standing order for your goods, so you can manufacture those and hold them until the optimal time comes to ship them. However, if those goods for any reason are damaged or spoiled while they are being compiled, then you bear that cost. If you are an engineer-to-order manufacturer, you would most likely choose to have your supplier hold inventory until an order comes in and triggers the shipment of components so that you can fulfill the order. The risk there is that the supplier
-- not you -- controls the operations of meeting your inventory requirements. If they can't source goods, or have manufacturing issues, etc., you may not be able to fulfill that order and may lose that business. There are many variables involved in SCM, and each represents the opportunity for disruption and error, which equals inventory waste and monetary loss. The only way to minimize this risk is to have perfect communication and performance with all trading partners in the value chain, which requires full visibility and optimization algorithms for determining inventory placement and movement. Suffice it to say, we're not quite there, yet. |