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Do you experience yo-yo in system inventory of certain fast moving products?
A common problem faced by many supply chain teams is the yo-yo in the overall system inventory of their fast moving finished goods. Their efforts to control it through better forecasting often accentuates the issue.
If we want to control such inventory behaviour, we must attack its root cause, as it is difficult to forecast consumer demand over long horizon of the cumulative lead time. The root cause, however, is rarely ascertained, discussed or addressed.
The root cause lies in the latency of various supply chain actions. We often take too long to incorporate demand shifts in our response (demand latency). Even after we acknowledge it, we don’t change our plans till the next planning cycle (planning latency). Eventually, when the plans are changed, various functions like procurement, manufacturing and logistics take time to execute it (execution latency). The cumulative impact of these three factors invariably leads to the yo-yo phenomenon.
A responsive supply chain works on reducing these latencies on an ongoing basis as a part of their Process of Ongoing Improvement (POOGI).