Inventory in Motion - A Direct Alternative to Global Fulfillment

The most efficient, slack-free supply chains, after all, wouldn’t require any inventory buffer, because supply and demand would be in perfect sync.

This vision certainly has its appeal: The death of inventory would mean dramatically reduced logistics costs and simplified fulfillment.

There’s no need to write a eulogy for inventory just yet. Most companies haven’t honed their networks and technologies well enough to eliminate the need for at least minimal inventory.

Logistics managers have to perform a daily, delicate balancing act: balancing transportation costs against fulfillment speed, inventory costs against the cost of stock-outs, customer satisfaction against cost to serve, new capabilities against profitability.

What’s more, two accelerating business trends are making it even harder to synchronize supply chains.

First, global sourcing is forcing supply chains to stretch farther across borders. World merchandise trade—which reached $8.8 trillion in 2004—has more than doubled since 1990. The goods people consume are increasingly made in some other part of the world,particularly in Asia.

This acceleration in global sourcing changes the logistics equation. When goods cross borders, considerations such as fulfillment speed and inventory costs get more complicated.

Second, powerful retailers and other end customers with clout are starting to push value-added supply chain responsibilities further up the supply chain. More customers are asking manufacturers or third-party logistics providers to label and prepare individual items so the products are ready to go straight to store shelves.

With added responsibilities, of course, come added costs. So upstream suppliers are always looking for ways to squeeze more costs out of other areas of the supply chain, such as transportation and distribution.