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High inventory norms at CFAs could hamper the service level.
Many companies strongly believe in pushing their finished goods from plants to the CFAs, which are the last inventory nodes in the company network and serve as invoicing points for various customers. The intention is to keep inventory ‘closer’ to the customers for faster response. This logic actually results in a drop in service levels.
I was recently working with a large consumer goods company which was facing frequent stockouts despite having a large inventory. When we reworked the inventory norms from first principles using demand variability, supply frequency and supply lead time, the desired norms came out nearly 50% below the norms in place. Reducing the CFA inventory norms to half resulted in an immediate jump in product availability and customer service levels.
The logic behind these results may look puzzling to some, but these are strongly founded in the Flow principles and the principle of Delayed Differentiation applied to committed inventory at the front-line inventory node.