Chain of Thought

On staying alive: Smart or just lucky?

I had to comment on one of the news items we posted to our site this week. It's the one titled Finished Goods Inventories Fall, Order Fill Rates Rise. It summarizes a report from Tompkins Associates noting that although more than half of the leading manufacturing and retail companies they surveyed reduced inventory levels in 2009, their customer service records with regard to order fill rates either stayed the same or improved. This is counter to conventional wisdom, which would have predicted that there would be widespread shortages and stockouts. In fact, according to this study, order fill rates actually improved.

These companies gave a variety of reasons, but the top two in the top five Tompkins cited were smarter planning (21%) and a drop in sales (21%). Those who instituted smarter planning had something to brag about, and I'll bet they'll be ready if the economy takes another unexpected turn, either north or south. However, I wondered if those who cited a drop in sales as the reason their customer service didn't suffer as a result of inventory cuts will fare as well.

I contacted Bruce Tompkins, executive director of Tompkins Supply Chain Consortium, and noted that the smarter planners seemed to be the ones who were proactive with their planning while those who cited their “drop in sales” might fall under the reactive category of inventory management.

“Do the managers who were reactive stand to do as well at pleasing their customers as the smarter planners the next time there's a major market swing?,” I asked.

“The companies that were proactive and changed their processes and people in order to drive the improved results – with better planning and more management focus – will be in a superior position when markets vary again,” Tompkins answered. “They will also be the ones that excel during this year's peak season, as well as going forward, because they have learned how to be more effective with their inventories. I think they will be able to continuously improve on 2009's results and drive inventory lower still, in addition to maintaining good customer service levels.”

And the companies that reacted because they were forced to? They will not be as well-positioned, was Tompkins' polite assessment.

Keeping customers happy while managing supply chain activities is a feat of synchronization in itself. After running the report on Tompkins' study on our site, I received another report, this time from a supply chain execution system vendor—Axway. The company says there are five crucial processes in supply chain execution:

1. Inbound delivery management – shrinking lead times make this a must.

2. Labor resource management – managing basic warehouse data is a prerequisite for automating and streamlining supply chain processes.

3. Returns management – Returns account for 4-5 percent of total logistics costs.

4. Global multimodal transportation management – Rising transportation costs are forcing organizations to break down traditional geographical barriers and standardize global supply chain processes.

5. Flow management – Supply/demand synchronization can decrease cash-by-cash cycle time.

How have your inventory strategies affected customer service? While no company has all the answers to matching their plans to outcomes, every company has to have some if they're to survive. Either that, or they have to be very lucky. Answer my question so we'll know why you're still alive.

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