10 Ways to Reduce Inventory in Your Supply Chain

New technologies and proven principles are enabling powerful approaches for managing demand and supply, resulting in better planning and execution.

An efficiently run supply chain has just the right amount of inventory. An agile supply chain is one that can be configured and reconfigured to keep it running efficiently even in the face of demand spikes and supply disruptions.

Given how hard it is to be agile, most supply chains err on the side of having more inventory rather than less since inventory can hide a lot of waste in every aspect of a company's operations.

What then, are some ways in which excess inventory can be taken out of the supply chain? As the preceding statement suggests, there are a number of wastes that can be eliminated and changes that can be made to reduce the amount of working capital tied up in inventory, without impacting customer satisfaction adversely.

A More Accurate Demand Prediction

It is easier to produce just the right quantity when we can know with greater certainty what customers are going to ask for. Today, it is getting easier to better predict upcoming demand because there are many more types of current data available including retail point of sale information, weather, social sentiment, demographics, retailer distribution center (DC) inventory, and the like.

Newer machine learning algorithms deployed by demand sensing technology can analyze these data streams, and self-test and self-adjust their parameters regularly to produce highly accurate forecasts for any time horizon. The impact is greatest in the short-term or current timeframe because traditional demand forecasting approaches cannot handle the scale and complexity of execution level decisions.

When this lower forecast error is measured correctly over the actual lead time, it can lead to the right decisions about how much inventory must be stocked where in order to meet the greatest percentage of demand on time and in full (OTIF). The result is a more optimal deployment of inventory in the supply chain.

Therefore, this approach of using demand sensing technology is the first step that many companies take to start their digital supply chain journeys.

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