Let’s face it: supply chains are incredibly complex. Especially as they get larger and larger. At each point in the supply chain – from individual buyer, planner, scheduler – to functional plant leader (i.e. materials manager) – to plant-wide supply chain manager – to divisional/business wide supply chain leader and beyond, individuals are making decisions that impact the supply chain performance. This series of posts, starting with inventory decisions, will be focused on discussing these in more detail – how to identify them in your business’s supply chain, prevent them from being made sub-optimally, and improve decision making moving forward.

Every individual has their own set of defined responsibilities, and their own perspective on how they see the supply chain, problems, and opportunities. However, I would argue – none of these individuals really understand the supply chain due to where they sit within in it, and the lack of visibility across it. Unfortunately, business leaders often perpetuate this problem by assigning metrics designed to monitor performance and incentivize behaviors – but if not defined carefully, these can actually perpetuate siloed decisions and local optimization, at the expense of the whole. Below I will define a set of fallacies I see on a regular basis, explain them, then outline how you – or your team – can try to prevent them from slowing down progress.



Inventory Levels

Inventory levels are one of the most visible and highly discussed measures of supply chain performance, drilled down the the individual plant, department, or area. Additionally, with a typical lack of end-to-end supply chain visibility, and a challenge separating “good” inventories from “bad”, locally driven optimization decisions abound. As a result, unoptimized inventory levels across the supply chain are a perpetual problem.



Given the working capital implications, along with other costs associated with inventories (i.e. space, obsolescence, handling, etc), many businesses expect their supply chain managers to drive continued reduction in inventory levels over time.

How does a supply chain manager go about achieving this? There are short-term and long-term levers. Short-term levers include reduction in safety stocks, micro-management of order schedules and push-outs, as examples. Long-term levers include supplier partnering on vendor managed inventory programs, variation reduction initiatives, lead time reduction, improved SIOP processes to improve supply chain coordination, etc. Unfortunately, short-term levers are commonly pulled as the primary tool – due to a lack of long-term strategic planning, lack of supply chain functional competencies, and short-term focus. However, the short-term levers are often exactly that – short-term, meaning they lack sustainability but consume resources that could be better deployed focusing on projects that will drive a continued benefit to the business and supply chain. Additionally, many of these short-term levers are local optimization activities – meaning that they may help a local inventory metric, but come at the expense of delivery performance, freight cost, or increase costs in other parts of the supply chain for a net-negative impact.

How does a supply chain leader ensure that teams are making the right decisions and focusing on projects that will drive a sustained benefit to the overall supply chain?

First, you must always start by ensuring the teams understand the concepts and have an understanding of materials management, and know “what good looks like”. This is a common issue – especially these days with the tight labor markets and war on talent – that individuals are promoted up into supply chain leadership roles, but often do not yet have the development needed to create and understand a vision on how to take the supply chain to the next level. Critically assess your supply chain talent to understand whether they truly know what needs to be done to get to the next level, or if they have a limited toolkit.

“To the one with a hammer, everything looks like a nail.”

If you don’t have the confidence they are there yet – consider whether they have the runway to get there – if so, prioritize development, benchmarking, and opportunities for them to learn. If you aren’t confident they will get there – at least in a timeline you and the business are comfortable with – consider if you need to make a change first. Without the right leaders in place, it is easy for you to spend countless hours coaching, baby-sitting, and helping – with little to show for it at the end of the day.

After ensuring you have the right talent in place, with the right skills, make sure expectations are clear. This is often taken for granted and can be assumed to be the case, but can become a source of frustration and conflict if not clearly communicated. You must clearly set the expectation, through your leadership processes, that the teams are expected to have sustainable inventory projects in place to reduce cost across the supply chain identified and on-going. What happens if a team is achieving their goals that were originally set, but cannot articulate what steps they are taking to drive sustained improvement? This is an easy opportunity for mis-alignment of expectations. Clearly, there are many variables impacting the lagging inventory metric – but achievement does not indicate that the team is performing the right behaviors, versus short-term non-sustainable actions, or “falling into it” via other influences not under their leadership. In addition to setting the expectation of on-going improvement regardless of lagging performance results, it is important to clearly segregate short-term containment type activities from those that will improve the supply chain longer-term, and can be built upon. I would suggest making a list of project ideas, classify them, and use in a training and expectation-setting discussion to more clearly explain this to the teams. It is important to balance the goal setting to incentivize and ensure teams are focused on driving sufficient levels of improvement, while also making sure goals are achievable to maintain engagement – this is a delicate balance. I find that starting with a bottoms up approach – setting expectations, motivating, and aligning to the organizational strategy first – then having the teams set the goal themselves (with your validation), goes a long way to creating ownership through the cycle.