by Jimmy Alyea
The location and quantity of inventory can be used by manufacturers to increase supply chain responsiveness to customers. Generally, increasing inventory increases responsiveness. “Responsiveness” includes handling a large variety of products, meeting short lead times, meeting a high service level, handling supply uncertainty, responding to wide ranges of quantities demanded, and building highly innovative products. The more of these capabilities a supply chain has, the more responsive it is. However, a trade-off is involved between responsiveness and efficiency. A manufacturer focusing on improving responsiveness may choose to increase inventory in the form of raw materials, work in process, and finished goods, but at the same time it decreases its efficiency by incurring higher inventory holding costs.
For example, a furniture manufacturer using a flexible manufacturing process could increase its raw materials inventory to become more responsive to customers’ special orders, demand for variety, and/or for innovative products. A manufacturer could also increase its responsiveness by locating large amounts of finished-goods inventory close to its customers, or a manufacturer with centralized inventories could ship direct to end customers or accommodate customer pickup at the factory.
Copyright 2012 James L. Alyea. All Rights Reserved.
About Jimmy Alyea: