There are instances where efficiency in the supply chain can be ensured by efficiencies in inventory, to be more precise, by maintaining efficiency in inventory reductions. Though inventory is considered a liability to efficient supply chain management, supply chain managers acknowledge the need for inventory. However, the unwritten rule is to keep inventory at a bare minimum.
Many strategies are developed with the objective of streamlining inventories beyond the supply chain and holding the inventory investment as low as possible. The supply chain managers tend to maintain the inventories as low as possible because of inventory investment. The cost or investment related with owning inventories can be high. These costs comprise the cash outlay that is necessary for purchasing the inventory, the costs of acquiring the inventories (the cost of having invested in inventories rather than investing in something else) and the costs related to managing the inventory.
Role of Inventory
Before understanding the inventory role in the supply chain, we need to understand the cordial relationship between the manufacturer and the client. Handling clients, coping up with their demands and creating relationships with the manufacturer is a critical section of managing supply chains.
There are many instances where we see the concept of the collaborative relationship being marked as the essence of supply chain management. However, a deeper analysis of supply chain relationships, especially those including product flows, exposes that at the heart of these relationships is inventory movement and storage.
More than half of it relies on the purchase, transfer or management of inventory. As we know, inventory plays a very important role in supply chains, being a salient feature.
The most fundamental functions that inventory role has in supply chains are as follows:
• To supply and support the balance of demand and supply.
• To effectively cope with the forward and reverse flows in the supply chain.
Companies need to manage the upstream supplier exchanges and downstream customer demands. In this situation, the company enters a state where it has to maintain a balance between fulfilling the demands of customers, which is mostly very difficult to predict with precision or accuracy and maintaining an adequate supply of materials and goods. This balance can be obtained through inventory role.