There was a rather interesting article in the August 2008 edition of Global Logistics & Supply Chain Strategies, Taking Another Look at Inventory Planning and Optimization.  I urge readers to read this article if you had any doubts as to the benefits of supply chain analytics and risk mitigation in today’s era of complex global supply chains.

As this article points out, today’s challenges of high commodity and fuel prices as well as the side effects of previous supply sourcing decisions to regions such as China, are rapidly driving today’s increased interest in the need to manage inventory across the entire supply chain.  An interesting series of quotes from Alan Milliken, business process education manager of BASF Corp. gets to the meat of today’s need, namely that this new era of $140 a barrel oil, greater supply chain instability, and rising consumer demand from the developing nations has added higher stakes to the ability to effectively manage inventory. As Milliken astutely points out, “we’re going to see more true risk assessment and risk management.”

One other interesting take-away to focus upon is a recent analysis by Professor David Simchi-Levi of MIT, a noted icon for our industry, reveals a 40 percent increase in U.S. logistics costs between 2002 and 2006, including a 49 percent increase in overall inventory volumes.  While readers can accurately conclude that rising fuel prices are the obvious drivers, there is also mounting evidence of increased safety stocks to offset the risk of longer supply chains. In a previous Supply Chain Matters blog posting highlighting findings from the 19th Annual State of Logistics Report, I highlighted the report conclusion that inventory carrying costs accounted for 44 percent of the overall increase in 2007 global logistics costs, with an 8.7 percent overall rise in inventories.

This author has had some first hand observation of companies that have confronted these challenges through investment in either supply chain network design and/or multi-echelon inventory optimization.  If your supply chain organization is struggling with these challenges, as well as the need to reduce inventory, you need to explore process and technology investment in risk assessment.  Talk with companies and organizations that have successfully made this transition, and are gaining value. Make your own conclusion, and share your comments with others below.

Contact me if you would like to have some introductions.

Bob Ferrari