Forecasting: Strategic Inventory Management

Dec. 28, 2006
Efficient inventory management could provide a competitive advantage.

Traditionally viewed by manufacturers as a way to become lean and reduce costs, inventory management could be a new competitive weapon in the battle for customers. At least that's what a recent study by analyst firm Aberdeen Group Inc. suggests.

The survey of more than 160 manufacturers shows 27% of companies consider inventory management as a way to gain market share through superior service and product availability. One reason for the shift in thinking is global sourcing, which is putting more pressure on companies to improve their inventory processes because of increased lead times, variability and inventory carrying costs, according to the study.

Respondents also cite a need to improve return-on-invested capital to reduce order-to-delivery cycle times as one of several reasons for re-evaluating their inventory management systems.

Aberdeen Group says the most successful companies are more likely than their peers to use multi-echelon inventory optimization, supply chain visibility systems and a forecasting system that supports customer-level forecasting.

Among the analyst firm's success stories for using such technology is pharmaceutical manufacturer Organon International Inc. An inventory optimization solution helped the Roseland, N.J.-based company improve forecast accuracy 20% to 30%, resulting in stock reductions at its manufacturing sites of 10% to 15% while maintaining a 99.9% delivery reliability.

Primary Goal For Improving Inventory Management
Lower inventory carrying costs 63%
Gain market share 27%
Improve customer service levels 8%
Growth support for new sales channel/geography 3%
Chart: Margaret Bangs

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