The first step in establishing a world class Inventory planning process is to evaluate your existing inventory planning process, technology and analytics capabilities to determine the current levels. Common techniques to achieve this first step is to analyze inventory parameter data and conducting interviews with the inventory planning stakeholders.
My this post defines, in my opinion, what are the various stages of Inventory planning capabilities. You can use this grid to determine where your capabilities currently sit and what are the capabilities you need to develop to move to the next stage.
Note that higher stages of Inventory planning maturity encompass all positive characteristics of the lower levels as well. analytics capabilities, technology, and process are the three dimensions used in this matrix. It is possible to have a different maturity level in each of the dimensions, for example an organization might have a high technology, but a lower analytics capability.
The Five Stages of Maturity
The Stages at a very high level are shown below. Detailed descriptions of stages have been provided after the illustration.
The first stage of the maturity model is an ad-hoc or “no planning” stage of inventory planning. There is no defined process to set inventory parameters in the system of record. Rules of thumb are used instead which leads to a circle of trial and error. Even the rules of thumb might vary across silos of the organization and the process cadence is not defined. In terms of analytics, the KPIs are not established and tracking of actuals is not done consistently. Overall the importance of inventory is not well understood.
The second stage is “Limited Single Echelon Inventory Planning”. As improvements compared to level 1, the process is now defined, but might vary across business units. Inventory parameters are reviewed one by one since no exception capabilities are present. As a result the process is not scalable. The technology at this level consists of offline, non-standardized spreadsheets. Since the Inventory planning system is not integrated with the ERP, simple day of cover policies are being used to avoid entering time-phased safety stock numbers. The governance includes tracking of inventory turns and a limited definition of roles and responsibilities.
The third stage is still operating with a single echelon optimization model, but the overall maturity is improved in many ways. The inventory planning process and its cadence is fully standardized, documented, and adhered to. Portfolio segmentation exists to focus on the inventory issues of high value first. Technology-wise the single echelon approach can still be implemented as a spreadsheet solution or alternatively a specialized planning system is used. The output of the tool is integrated with the ERP
system and exception reporting exists, which makes the solution scalable.
The fourth stage of inventory planning maturity adds the element of regular root cause analysis of stock out and excess inventory. MEIO enables the scientific application of postponement and inventory placement.
The system is fully integrated with the source and target systems and allows for cost based optimization through mathematical programming. What-if scenarios are possible to model the inventory impact of new product introduction, inventory impact of a new sourcing method, changes in demand variability, etc. Inventory target adherence is tracked and root causes are identified, documented, and a plan is created on how to avoid non-adherence in the future. Cross functional initiatives on rationalizing the product portfolio might be included in the Inventory Optimization scope based on a total cost of ownership approach.
The final stage of inventory planning maturity is called “End-to-end strategic inventory planning”. The end-to-end supply chain is included in the maturity model including external suppliers, customers, and their suppliers and customers. The holistic approach requires sharing of information across the different organizations.
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