Inventory operations and business strategy are still not aligned

Companies say they are striving for customer intimacy, but they continue to steer their inventory operations purely on costs. That is one of the contradictions that emerged from the Inventory Strategy Survey, conducted by Supply Chain Media in collaboration with Slimstock. “In many companies there’s a disconnect between strategy and supply chain,” says Chief Trendwatcher Martijn Lofvers. Different companies are trying to bridge this gap in different ways.

By Harm Beerens

Inventory management is a complex due to the need to find the right balance between service levels, supply chain costs and risks for each product. To make things even more complicated, that balance is – or should be – highly dependent on the company’s intended strategy for each item. “I call this the cheap/good/fast dilemma,” says Jan Kraaijeveld, an inventory expert from Slimstock. “Do you want to offer the lowest price in the market, the best product or the fastest delivery time? You have to make choices, because it’s impossible to do all three at once. At board level there are often clear ideas about this, or at least you hope so. But there is still a lot to be learned about how to apply those ideas in the daily, operational inventory management processes.”

Inventory Strategy Survey

Together with Supply Chain Media, Slimstock launched a survey to investigate the extent to which strategy and operations are currently linked and to identify the precise stumbling blocks for companies. The questions examined what type of company the respondents wanted to be, which kind of supply chain they thought would be appropriate and which key performance indicators (KPIs) they use for steering. More than 158 supply chain directors, managers, analysts and planners from Dutch manufacturing, wholesale and retail completed the Inventory Strategy Survey. “The discrepancy is immediately apparent, even from just looking at the general responses,” observes Lofvers. “The large majority say that their business strategy is customer intimacy, but when they are asked about their supply chain, they indicate that it’s primarily focused on efficiency and minimizing costs. That’s an immediate sign of friction.”

Six supply chain types

According to Lofvers, there are six types of supply chains depending on the corporate strategy, each dominated by a different business department: Sales or Customer Service in the case of customer intimacy, R&D or Marketing in the case of product leadership, and Purchasing, Logistics and Production in the case of operational excellence. “As a company you have to make explicit choices here, because there’s no such thing as one supply chain fits all. The processes, systems and KPIs are substantially different at a retailer like Action than at De Bijenkorf or Rituals. Although they all operate in the same sector, they each have a different mission – different DNA. If you don’t translate that properly into the type of supply chain, there will be a disconnect between who you want to be and who you are in practice. That puts you on shaky ground.”

Multi-echelon inventory process

One company that has worked hard in recent years to align its supply chain organization with its strategy is Alliance Automotive (formerly PartsPoint), a major distributor of automotive parts with a range of more than 100,000 items. “We made a number of large acquisitions, including Dabeko and Staadegaard TC, and tripled our sales in a short space of time,” says Supply Chain Director Ardjan van der Blonk. “We have fused together various companies, each with their own strategy – one more focused on import, the other on retail – into a single tightly organized distribution network consisting of over 200 local stock points, six regional distribution centres (DCs) and one central DC.” … … …