The Problem With Traditional Inventory Management

Read the following article.  Comment on your suggestions on what can be done to improve one of the opportunities identified in the article. Provide concrete, detailed recommendations.  Do not simply state that more communication is needed.  Explain how communication can be improved (i.e. via what mechanisms).

February 23, 2015 · By Orchestro

With out-of-stocks representing both a significant cost and a reputational concern, inventory management continues to be a thorn in the side of Consumer Packaged Goods (CPG) companies. The reason? Traditional inventory systems have always focused on improving forecasting, while the forecast is only a small part of the overall inventory management problem. Most of the issues occur at the retail store shelf, which arent included in forecasts.

A new paradigm is needed – one which brings all factors into play, and which enables a proactive approach to solve inventory problems before they occur.


Traditional inventory systems attempt to solve the inventory management dilemma through better forecasting, improvements in the order point/order quantity process, or by adjusting safety stock levels.


However, order quantities, safety stock and lead time represent only a minority of the sources of inventory problems. Many inventory problems are the result of poor execution, poor communication, and / or poor decision making. Poor execution is common at all levels of the supply chain and starts at the store level.

For example:


Product makes it to the store but doesn’t make it to the shelf.

Promotional displays or inventory make it to the store but not to the floor.

Product is put on the wrong truck at a distribution center, sent to the wrong store, or is late to a distribution center.

Poor communication is common both within and across supply chain functions and takes a particular toll on data analysis and collaboration. Analysts, category managers, sales managers, and supply chain personnel look at problems in different ways and focus on different aspects of them. Getting insights from data is often a complex process for CPG data analysts, making collaboration difficult.


Poor decision-making is endemic at all levels of the supply chain and is often the result of both poor execution and poor communication. Quite often poor decisions are made because the decision-maker doesnt know where to focus. There are so many different SKUs in so many different stores, from so many different distribution centers, in so many different locations in the stores, under so many different conditions. Consequently, shortcuts are almost always taken, which may compound the problem or lead to new ones.


Poor execution, communication, and decision making, coupled with advanced inventory management systems leads to a vicious cycle, ultimately reducing sales, profit margins and customer loyalty.