Sustaining a high-performance inventory ecosystem


A cost-effective approach to enable continuity and manage risk


That COVID-19 exposed the inadequacies of conventional inventory management techniques cannot be denied, but the truth is far more disturbing. Across multiple surveys, over 70% of supply chain professionals are seeking more aggressive policies and practices to lower inventory risk and preserve supply continuity.


The pandemic showcased the limitations of managing inventory as a discrete function that could somehow be evaluated or improved through traditional controls including cycle counts, shrinkage, lean two-bin system adherence, and other similar metrics or practices. Today’s approach to successful risk management calls for a far more expansive risk and operational analysis of inventory management including enabling systems, sourcing, enterprise planning, storage logic, and cost-to-serve modeling. 





Welcome to the ecosystem


The inventory management ecosystem is an enterprise-wide approach to comprehensive inventory risk and control management that encapsulates all critical interdependencies that drive a high-performance inventory operating model and determine the ecosystem’s ability to drive resilience across the supply chain.


An inventory management ecosystem consists of:

  • Governance structures translating policies, practices and business strategy into high-compliance performance
  • Enabling structures that fully integrate planning, forecasting, production scheduling and sourcing for uninterrupted materials flow
  • Disciplined storage logic for safe, agile and secure materials management
  • As-designed enterprise resource planning (ERP) utilization and functionality that provides the actionable intelligence necessary to evaluate risk factors and drive continuous improvement

Combined, ecosystem components are tasked with delivering on the promise of required service performance while effectively managing portfolio risk. Let’s take a tour.




Governance: The blueprint for compliance


One of the most underrated and compromised supply chain functions — inventory operating model governance — offers the doorway through which risk management and compliance follows. Beyond daily management, inventory governance represents the front line in compliance through its four-dimensional focus, which consists of:

  • Inventory policy guidebook ownership and adherence
  • Documented and enforced policy and service compliance against available intelligence
  • Fostering cross-enterprise relationships critical to integrated operations
  • Converting daily learnings into documented, structured continuous improvement programs to continually reduce risks, strengthen controls, and zero in on required service performance that meets or exceeds margin targets

Properly evaluated, inventory governance allows risk professionals to confirm the degree to which policies, practices, intelligence and compliance combine to maintain balance across the ecosystem.




Enablement: Central casting or castaway?


Uninterrupted materials flow only occurs when inventory management is a true partner of the enterprise planning, sourcing and conversion functions.


Comprehensive risk analytics must probe the level of by-design connectivity, data transparency and documented decisioning processes required to facilitate continuous and timely materials replenishment by location, product line and conversion timing.


By assembling and interrogating all integration points and enabling data flows, savvy risk management practitioners, internal audit, or continuous improvement professionals will be well positioned to factually establish the level of controls and enterprise compliance necessary to consistently and cost-effectively fulfill service performance levels via the integrated (or castaway) inventory ecosystem.


Across the enterprise, critical control points can be effectively mapped in a risk control matrix to drive ecosystem compliance analytics including:

  • Planning process documentation
  • Forecast data availability and timing
  • Integration of cycle count results
  • Cross-enterprise collaboration points
  • Conversion schedule publication and actioning
  • Above all, procurement triggers for routine materials replenishment and strategic sourcing events linked to changing marketplace requirements or portfolio risk reduction efforts

Enablement is all about synchronization. Can your customers depend on that?




The logic of it all


Between delivery and consumption, materials management is either a high-compliance, controls-based vehicle for conversion success or a potentially neglected investment pool. Inventory logic represents the physical controls, location governance, accuracy testing and handling protocols that consistently and safely deliver on-demand, on-time materials placement aligned with intended outcomes. Spinal implants for surgery, replacement brakes for the morning’s first flight, and packaging that will transport nutrition for the fight against hunger are disparate items. But they all share a portfolio of common traits including exacting specifications, mandatory outcomes, and unyielding regulatory demands that must all directly align to brand standards and reputational preservation.


Always ask the right questions. Are your critical materials and inputs in the same location each and every time? Do your controls rely on proven algorithms driving cost-effective space utilization and a safe operating environment? Is there robust ingress-egress security monitoring and enforcement to control access and minimize fraudulent transactions? Are all activities in compliance with documented standard work? If the answers to any of these key questions is no, flawless procurement, accurate forecasting, and collaborative planning will all become battlefield casualties when ineffective storage logic prevails.




You paid for It. Happy now?


A significant percentage of supply chain professionals still rely on spreadsheets for their inventory operations even in ERP-dominated environments. Various studies continue to demonstrate that ERP investments often produce sub-optimal results through a variety of factors including poor decisioning criteria, insufficient training and unenforced utilization.


Sound inventory ecosystems stand on a data foundation that produces timely, actionable intelligence on compliance, accuracy and service performance, triggering daily analytics on mission fulfillment. Representing one of the largest untapped or overlooked risk categories, as-configured (final configuration actually implemented) IT system compliance provides internal auditors, risk management professionals and CFOs with a powerful compliance chessboard focused on information availability, data mining and use, available (as-used) performance dashboards and their configuration options, cycle counting policy adherence, cycle counting accuracy, and the translation of IT system-derived intelligence into meaningful risk remediation and documented continuous improvement efforts. Each IT system dimension (as-configured functionality, physical utilization, and intelligence-driven risk management) should combine to provide an effective ecosystem management tool enabling integration, policy enforcement and immediate corrections.




3 principles of resilient inventory ecosystems


Cost-effective, high-performance inventory systems are based on three interlocking principles:

  • The item being procured and managed
  • The item’s purpose in conversion or consumption
  • The business outcomes contingent on the item’s availability

Under the best of circumstances, successful adherence to each principle requires a well-orchestrated symphony of events interconnected by documented collaboration points, auditable controls, and the intelligence necessary to make daily decisions that reduce risk and aggressively drive resilience.


Through the ecosystem approach, risk management professionals can properly equip themselves for a far more productive, insightful and actionable inventory operating model evaluation. This approach enables them to focus on the documented enterprise-wide drivers, interdependencies, collaboration points and required system outputs that combine to translate materials procurement into consistent, brand-enhancing outcomes.




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