6.

Method for Improved Inventory Management

Once the overall inventory management process The initiatives include (1) (2) policy definition and refinement, information integration, and

is in place and operating

smoothly, firms can use additional initiatives to improve inventory effectiveness.

(3) expert systems application.. Policy Definition and Refinement Inventory management incorporates a number of policies and procedures that guide inventory-related decisions. These involve performance measures and training. The role of each is discussed. Performance Measures Clear and consistent performance measures for inventory planners are key ingredients in the inventory management process. These measures must reflect the trade-off between service and inventory level. For example, if planner performance measures focus solely on inventory level, the planner's tendency is to minimize inventory levels with a potential negative impact on service. Conversely, a singular focus on service will lead the planner to disregard inventory level. Inventory management performance measures must clearly reflect the trade-offs desired by the enterprise, and the reward structure for individuals who maintain the system must be defined to reflect requirements. The specification must provide a clear and consistent definition of the goals and an understanding of how goal achievement affects personnel performance evaluations.

Training Inventory management is a very complex discipline because of the number of factors involved in the process as well as its impact on other enterprise functions such as production and procurement. It is also important to understand the nature and dynamics of the interfaces between enterprise inventory management and other entities within the value chain. In response to these factors, many firms are increasing both the amount and the sophistication of training to improve inventory management decision making. Two types of training are appropriate. First, planners should understand how inventory parameters such as service objectives, review periods, order quantity, safety stock, and inventory management logic influence inventory operations and performance. For example, the planner should understand how review periods, order quantities, and safety stock can be traded off to meet service objectives. Second, planners should understand how their inventory management decisions affect other members of the value chain. For example, when inventory management elects to build up finished goods inventory to support a customer promotion, the planner should understand how that decision will influence production and procurement. If the buildup is substantial, production or procurement may not have the ability and capacity to fulfill the demand. Similarly, inventory planners must also consider the impact of demand declines and surges on the resources of other value chain partners.

Information Integration

Inventory effectiveness and performance can be substantially increased and uncertainty decreased by integrating requirements information (forecasts, orders, marketing plans, inventory status, and shipment status) across the enterprise and among channel partners. Current technology facilitates information exchange using

global networks, electronic data interchange, and satellite communications. For example, common forecasts and a consistent measure of inventory availability reduce the uncertainty between enterprise systems and result in less need for buffer inventory .The sidebar on Dow Chemical and Eastman Kodak illustrates how improved information integration both within the enterprise and across the supply chain results in greater inventory effectiveness. Expert Systems Application Expert systems represent another initiative that firms utilize to enhance inventory performance. These systems use a computerized knowledge base to share inventory management expertise across the enterprise. This shared expertise can supplement the training and awareness discussed above. Expert systems may provide insight into the review period, inventory management logic, and strategies to employ with each product/ market group. Results indicate that expert systems can provide substantial improvements in productivity and inventory performance.