This document discusses several pitfalls that can occur in inventory management across a supply chain. It notes that different sites within a supply chain may have conflicting objectives that are not optimized for the whole chain. It also discusses how companies may make assumptions about customer needs without consulting customers directly. Additionally, it explains that a lack of linked data between sites can lead to incorrect production and increasing inventory backlogs. Finally, it emphasizes the need for dynamic stocking policies that account for supply and demand variability, as well as considering the total supply chain costs rather than just individual site costs.

1. Pitfalls of
Inventory
Management

2. In a supply chain with multiple sites it is not uncommon to
find fairly autonomous management teams at each site. The
objectives of each team may differ or even be conflicting.
Changes at Site A might improve their performance but due
to the conflicting ideas and objectives the changes may not
be for the good of the entire supply chain.

3. Companies often come to conclusions about what satisfies
their customers without actually consulting their consumers.
For example the number of completed orders might be
more important than the shorter time it takes to send out
incomplete orders in smaller batches.

4. Consumers like to track the progress of the products they
have ordered. They wish to know when their order will
arrive but they expect to have updated information
available to them to see where their order is in the delivery
process. If this information cannot be obtained it may result
in dissatisfaction, confusion and loss of goodwill.

5. Data at different sites is often not linked and this
information has to be retrieved manually which can take a
long time. In the meanwhile the wrong products are being
produced and inventory backlog is increasing. This pitfall
can be combated by ensuring that all operating systems
can somehow be linked.

6. In any inventory system it is always a risk as supply
chains cannot ensure the quality of incoming products or
the time it will take to receive these products. Investment
into the wrong resources may also be a result of the
supply chain not being consciously aware of the
uncertainties.

7. This is when we choose to use basic, static inventory
policies, such as an ABCD classification, these are out-
dated and just aren’t good enough. Stocking policies
must be dynamic, and more considerate of variability of
supply and demand.

8. operations supplying both internal and external
customers tend to focus on the latter, even though the
internal customer is using the input to then service
external customers

9. This is mostly focused on companies that must merge
products from several sources for final shipment to the
customer. The perception then: coordination is poor,
resulting in expediting costs, poor customer service, and
inventory buffers

10. This is when Transportation decisions is based on lowest
logistics costs, not total supply chain costs, especially
inventory.

11. There is no standard approach for measuring the cost of
inventory, and companies often under-represent the total
costs.

12. Basically, the challenges of operational silos. The
advent of the “integrated supply chain organisation”
addresses the problem, but in the end, this really
describes the heart of the supply chain challenge,
doesn’t it?
• Independent performance measures and incentive
systems at different sites
• Barriers between manufacturing and distribution

13. Discrete manufacturing costs are the focus on product
design considerations, not total supply chain costs.
We’re making progress here, and the notion of
“designing for total supply chain costs” has caught on in
the past few years.
• No consideration of manufacturing and distribution in
product-process design.
• No consideration in design for customization and
localization
• Organisational barrier between design and the supply
chain

14. Decisions to open or close a manufacturing or
distribution center is looked at too narrowly, on those
discrete costs alone, not on the total supply chain
impact. With the use of network planning tools and
general supply chain thinking, I don’t believe this is at all
common today.
• Chain decisions without consideration of inventory and
response time efficiencies.

15. Looking at the supply chain only to the first-level
customer (such as a distributor or retailer), not the end
consumer. This basic issue of course set the stage for
Dr. Lee’s subsequent work on “The Bullwhip Effect”, and
is at center of today’s demand-driven supply chain
paradigms.
• Focus on internal operations only
Inadequate understanding of operational environment
and needs of immediate and ultimate customers.