Inventory Optimization can Make or Break Customer Experience
I sat down with Mark Linsmeier, a Principal Operational Excellence Business Consultant with over 20 years' experience and an extensive background in supply chain and operations within the Consumer & Industrial Products industry. He has assisted and managed companies ranging from start-ups to mature Fortune 50 globalized industrial corporations.
Today, manufacturing is more than building, delivering and returning physical goods. With margins at an all-time low and high expectations for speedy delivery, the experience provided is often the go-to-way to differentiate - from sales through delivery and ongoing support services.
Inventory optimization opportunities to improve customer experience range from fine tuning of existing inventory management strategies to deep organizational changes. Organizations can improve operating processes and information flow to streamline inventory management, reducing overhead and improving cash flow.
Q: How can these types of improvements to operating processes improve the customer experience?
A: High product costs and swelling inventories may seem like an internal, operational issue several degrees removed from the customer experience; however, these costs lead to higher prices for the customer. Also, incorrectly lowering inventory levels to reduce these costs can create stock outages and back orders, which quickly result in lost sales and dissatisfied customers. Fill rates and service levels directly affect customer retention and turnover.
Q: What makes optimizing inventory difficult?
A: The primary hurdle in optimizing inventory is establishing and maintaining proper stocking levels and replenishment strategies. These need to be set in a way that balances both customer expectations for product availability and overall costs of carrying inventory.
Q: What types of events can introduce inventory level challenges?
A: Integrating acquisitions or consolidating products into one distribution center can make overall finished goods inventory levels a challenge.
The immediate challenges can be:
Shortage of physical space
Bloating inventory values
Q: If an organization is running out of space, why don't they just reduce the quantity of each product they stock?
A: Arbitrary cuts can result in a severe over-correction creating significant stock outages and back orders of core product. Customer order fill can plummet, resulting in not only lost revenue from back orders, but more critically dissatisfied customers who turn to competitors to fill their needs.
Q: If stocking level cuts adversely affect customers, how do you tackle high product costs and bloating inventory values, while improving the customer experience?
A: We approach process improvement using the Lean Six Sigma methodology, which requires a data driven analysis and consideration for the voice of the customer and their requirements. Any change to inventory replenishment strategies must be consistent with customer demands and in alignment with the enterprise business strategy.
In some cases, our team will:
Complete a thorough analysis of customer sales history vs. on-hand inventory. We take several factors into account, including where products fall within their lifecycle, profit margins by product and customer, strategic value of each product category and customer market segment.
Identify slow moving and obsolete products that need to be reduced or eliminated to free up space for products that were selling.
Re-balance high velocity (fast selling) and low velocity (slower selling) items to improve both warehouse and labor utilization by moving inventory to locations with more suitable capacity and accessibility.
Develop a comprehensive cycle count program to improve and maintain inventory accuracy. Accurate inventory levels build confidence and enable safety stock level reduction without adversely impacting product availability.
The inventory management strategies that got a company where they are today are not guaranteed to be the ones they need to continue growing and meeting the rapidly evolving needs of their customers.
