Forget 'lean' and ‘right size’ your supply chain inventory, research advises

15 September 2015

Companies have to forget the ideal of lean inventories and start to “right size” them, according to research.

A study by AT Kearney said while many supply chains have benefited from leaner inventories, for others it has gone too far.

It acknowledged the benefits of having a lean inventory, including reducing waste, but highlighted examples where spikes in demand or supply chain disruption had caused inventory problems.

It concluded finding the right inventory level is a matter of balancing the trade-offs between planning accuracy, supply resilience, and customer offer.

The paper, Making Sure Lean Stocks Are Properly Nourished, highlighted examples of companies it said have got the balance right. It also pinpointed key actions for determining appropriate stock levels.

The report concluded the best companies configure their supply chains with buffers in inventory or capacity to handle inevitable deviations from forecasts, and supply chains have to be resilient enough to cope with unexpected demand.

It also recommended differentiating the offer and avoiding a one-size-fits-all approach, and suggested special variant products could be supplied on longer lead times than standard products.

Instead of measuring overall stock turns, firms should measure the balance between understocked and overstocked items, and items in the target range.

Charles Davis, partner at AT Kearney and UK leader of the strategic operations practice, said: “Once companies accept the idea of ‘right sized inventories’, the whole perspective changes. But finding the right inventory level is a balancing act between accuracy, supply resilience and the customer offer, and only few companies have yet resolved these trade-offs successfully. And even fewer have addressed the risks to supply chains from unexpected spikes in supply and demand.”

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