Risk pooling, or a concept that suggests demand variability can be eliminated if a company can aggregate demand across locations, time or products, is one of the most important things to know about supply chain planning and management, according to what Industry consultant Edith Simchi-Levi wrote on Business 2 Community. As an example, she said if demand is aggregated across locations, one demand area will likely offset another. An inventory management system is a tool that should be considered when an organization is looking into this concept.
"The less variability in demand the less safety stock is required to buffer against fluctuations," Simchi-Levi said. "In addition, the more consolidated the inventory, the easier it is to manage overall and the less risk of obsolescence."
Other considerations must include:
– Where the warehouse is located and how the product flows out to consumers
– What the push-pull strategy is
– How items are transported out; the less expensive these costs are, the larger batches are which can be sent out
– Which product design is being used and how this can affect transparency, shipping and other factors
Simchi-Levi said customer value and business needs should be the big drivers of the products, strategies and delivery methods. Risk pooling should help comprehend what will happen when more products, options and warehouses are factored into the process.
Supply Chain 247 said some keys toward better inventory management included having a centralized location, utilizing an updated fact sheet at all times by consistently having up-to-date data and looking out for key performance indicators to keep improving.
"To begin with, of course, there may be data that is less than flattering to some departments," the website said, adding that once reporting is done, this will likely improve as the company gains stronger controls over its business.
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