Managing Supply Chain Inventory: Pitfalls and Opportunities
Managing Supply Chain Inventory: Pitfalls and Opportunities
15, 1992 Reading Time: 23 min
Hau L. Lee and Corey Billington
Most manufacturing enterprises are organized as networks of manufacturing and distribution sites that procure raw materials, transform them into intermediate and finished products, and distribute the finished products to customers. The simplest network consists of one site that performs both manufacturing and distribution. More complex networks, such as those required to manufacture mainframe computers, span multiple sites that may be scattered around the world.
We call these networks supply chains or value-added chains, as shown in Figure 1. Often, multiple managers — manufacturing, operations, logistics, material, distribution, and transportation managers — have responsibility for different parts of a chain. Overall operational performance, as part of the finished product’s cost, may be the responsibility of the product division’s general manager.
Managing a supply chain is very different from managing one site. The inventory stockpiles at the various sites, including both incoming materials and finished products, have complex interrelationships. Efficient and effective management of inventory throughout the supply chain significantly improves the ultimate service provided to the customer. In this paper, we describe the many pitfalls of managing supply chain inventories and suggest opportunities for improving management and control. Throughout the discussion, we draw upon our knowledge and experience of supply chain management at electronics, computer, and automobile companies.
Common Pitfalls
Pitfalls 1 through 4 address problems related to information definition and supply chain management. Pitfalls 5 through 9 relate to operational problems. Pitfalls 10 through 14 are problems that are strategic and design related.
Pitfall 1: No Supply Chain Metrics
Although the supply chain’s overall performance depends on the sites’ joint
15, 1992 Reading Time: 23 min
Hau L. Lee and Corey Billington
Most manufacturing enterprises are organized as networks of manufacturing and distribution sites that procure raw materials, transform them into intermediate and finished products, and distribute the finished products to customers. The simplest network consists of one site that performs both manufacturing and distribution. More complex networks, such as those required to manufacture mainframe computers, span multiple sites that may be scattered around the world.
We call these networks supply chains or value-added chains, as shown in Figure 1. Often, multiple managers — manufacturing, operations, logistics, material, distribution, and transportation managers — have responsibility for different parts of a chain. Overall operational performance, as part of the finished product’s cost, may be the responsibility of the product division’s general manager.
Managing a supply chain is very different from managing one site. The inventory stockpiles at the various sites, including both incoming materials and finished products, have complex interrelationships. Efficient and effective management of inventory throughout the supply chain significantly improves the ultimate service provided to the customer. In this paper, we describe the many pitfalls of managing supply chain inventories and suggest opportunities for improving management and control. Throughout the discussion, we draw upon our knowledge and experience of supply chain management at electronics, computer, and automobile companies.
Common Pitfalls
Pitfalls 1 through 4 address problems related to information definition and supply chain management. Pitfalls 5 through 9 relate to operational problems. Pitfalls 10 through 14 are problems that are strategic and design related.
Pitfall 1: No Supply Chain Metrics
Although the supply chain’s overall performance depends on the sites’ joint