The essence of supply chain management fundamentals is a constant balancing of conflicting priorities. Every decision that drives improvement in some aspects of operations has a cost associated with it. More inventory means better availability, but higher costs. Smaller lot sizes reduce inventory, but make shipment and handling more expensive. Larger lot sizes are cheaper to ship, but result in higher inventory.
In making the trade-offs necessary for supply chain management success, it is good to keep these three supply chain management fundamentals in mind.
1. You can't have everything.
Inventory, service (i.e., availability) and cost are the three primary, recognizable measures of supply chain success. Supply chain managers are expected to lower inventory, increase availability and reduce cost. The reality is that you can't do all of these things at the same time. It costs more to provide higher availability. Reducing inventory or cost will inevitably reduce availability. Nevertheless, your job is to find the best balance or "optimum" result of the highest level of availability you can achieve at the lowest inventory and lowest cost. It is possible to manipulate this equation somewhat by recognizing the impact of time and variation.
2. Time is your friend -- and your enemy.
Time is always a factor. In fact, time is the primary reason there is such a thing as supply chain management. We locate warehouses close enough to customers to get the product to them quickly. Our choice of transportation method is largely dictated by lead time. The more time we have to take action, the more efficiently and cheaply it can be completed, and time and distance will always be important factors in making supply chain trade-offs. To this end, the visibility provided by supply chain systems, Industrial Internet of Things technology and collaboration are powerful tools for gaining time by providing the earliest possible notice of requirements, changes and disruption.
3. Risk is a fact of supply chain life.
An inescapable supply chain management fundamental is that the relationship between inventory and availability is influenced by one other factor: variability. If things happen when they are supposed to, with no risk of variation -- for example, late delivery, damage, change in demand and so on -- there is no need to stock extra parts or products in the supply chain in order to maintain high availability. But that is not the world we live in. Variation exists so extra inventory is required. As part of supply chain planning, the risk of disruption should always be considered. Such risks include transportation failures, natural disasters, theft, fire and strikes. There are several well-established methods for anticipating and accommodating supply chain risk and preparing for quick recovery should disaster strike. Be sure to factor risk in any plans that involve comparisons of various sourcing, handling, delivery or storage alternatives.
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