Why Is Inventory Performance Declining?
Inventory is often considered the most valuable category of assets on manufacturers’ books. Since it has its downsides—tying up large amounts of cash and sometimes diminishing in value—it is common practice to minimize inventory as much as possible without hurting customer service levels. And when it comes to managing inventory, manufacturers seem to have reached a point of diminishing returns.
Increasingly, executives are turning to advanced information management solutions. With perfect information, the right part would always be at the right place at the right time and there would be no need for inventory. Since we don’t live in a world with perfect information, how effective are advanced information management solutions at further reducing inventory?
This paper, a collaboration between MAPI and PwC, offers possible explanations for a seeming decline in inventory performance, using survey results combined with research.
Some key insights:
- For most companies, technology isn’t the barrier to reducing inventory. Rather, it’s management discipline, especially around integrated business planning
- Key impediments to carrying optimal inventory levels include lack of discipline in operating processes, a complex and large SKU portfolio, and poor forecasts from marketing and sales
- Even after five years of an anemic post-recession recovery, manufacturers are adding inventory to their books at a rate that is much faster than GDP growth
- Inventory turns have declined steadily and are near a 10-year low, despite a decade of investment in new information management technologies
- Companies that are satisfied with their ERP systems enjoy significantly higher three-year margin growth than their peers who aren’t satisfied with their ERP systems
- Companies with effective supply chain visibility (SCV) systems delivered average inventory turns 30% better than their peers with ineffective SCV systems