MAPI/PwC Report: Why is Inventory Performance Declining?

Estimated reading time: 4 minutes

“Information management systems matter because they get the right information to the right place at the right time in order to improve effectiveness,” said Cam Mackey, SVP, Operations and Partnerships, MAPI. “To that end, many companies have invested a great deal of time and money implementing ERP and SVC systems. Together, these platforms can provide manufacturers with detailed information including orders, lead times, stock quantities and locations. Effectively integrating these information systems enables manufacturers to do a better job of synchronizing supplier deliveries with production schedules and customer orders, resulting in improved customer service and less overall inventory.”

Improving Supply Chain Management

In an effort to improve supply chain management, many companies are embracing SCV systems – enabling companies to track and manage raw materials, work-in-process, and finished goods across the extended supply chain. When fully implemented, they provide extensive demand, planning, supply and inventory information throughout the supply chain, enabling users to optimally balance customer service levels with costs to serve. Of those surveyed, 70 percent reported having a SCV system in place.

As effective systems drive better margin growth and higher turns, companies are still experiencing inventory growth and supply chain issues. When asked about the factors having the biggest impact on supply chain visibility, uncertainty of supplier deliveries and unpredictable customer demand were among the responses most cited. While SCV systems are intended to link customer demand to production schedules and supplier orders/deliveries, respondents continue to cite problems with forecast accuracy.

Respondents also addressed their ability to maintain optimal inventory levels, listing lack of discipline in operating processes and practices, a high degree of product complexity or number of stock keeping units (SKUs), and poor forecasts from marketing/sales as having significant impact.

Many of the factors listed above are driven by management disciplines, not information systems. The management discipline that most strongly addresses these factors is integrated materials management (IMM), commonly enabled through sales, inventory, and operations planning. This discipline is focused on synchronizing sales forecasts with delivery commitments and material supplies and involves all of a company’s key functional stakeholders. According to Mackey, “While systems matter, the bottom line is that effective supply chain visibility all comes down to management discipline.”

“The single biggest driver of excess inventory and unreliable delivery performance is inadequate material management practices. While SCV systems can greatly enhance IMM they cannot replace disciplined review and approval by critical management stakeholders. To make this task easier and more effective requires buy-in and coordination across key functions in the organization – even with the best technology in the world, it still comes back to management discipline,” Pillsbury said.

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