What Every CFO Should Know About Inventory Optimization

CFOs strongly believe that good supply chain performance is vital to financial success. Studies show that a majority of CFOs believe the supply chain is directly linked to their ability to meet corporate objectives. One third of C-level supply chain executives view supply chain management as a market strategy differentiator.

This is especially true today, after a year that CFO magazine called “one of the worst ever for corporate working capital performance.” In 2009 the top 1,000 public companies saw days sales outstanding deteriorate by 10% while days payable outstanding and days inventory outstanding both increased sharply.

Now as a tough recession ends, a slowly growing economy causes upward pressure on inventory levels. Inventory strategy is crucial to good supply chain performance and availability of working capital. As the guardian of market value, no one is better positioned to transform supply chain management than the CFO.

Given that CFOs have varying levels of experience with inventory optimization (IO), this paper provides a few facts that every CFO should know, including:

• Top concerns of senior supply chain executives are shifting to customer service requirements.
• The unique value of IO to the overall supply chain. How exactly does it reduce inventory and increase customer service?
• ERP and Advanced Planning and Scheduling (APS) systems do not optimize inventory across the supply chain.
• Inventory optimization can move the organization to an entirely new trade-off curve between inventory cost and service level goals.
• What role should the CFO play in IO initiatives?
• The gap in business perspective and communication styles between supply chain practitioners and members of the senior staff must be bridged.