In the wake of the recent earthquake and tsunami in Japan, companies are struggling with numerous supply chain disruptions from lack of raw materials to damaged facilities to missing personnel. Ad hoc strategies, such as drawing down inventory stockpiles, are poor substitutes for proper supply chain continuity planning, says Jeff Karrenbauer, president of INSIGHT, a supply chain management consultancy.
"Infrastructure has been severely compromised in Japan which, in turn, impacts the ability to both manufacture and distribute," says Karrenbauer. "Even if companies have stockpiled parts, it will be a long time before product flow is back to normal in Japan, so these inventories will eventually be depleted. Therefore, companies need to have a strategic supply chain plan in place that mitigates the impact of disruptions. Possible components of the plan include inventory positioning, alternative sourcing, transportation options and so on."
Strategic supply chain plans incorporating inventory analysis balance the cost of extra stock against the risk of lost sales, lost customers and a negative impact on bottom line profitability. Too much inventory results in higher costs, negative impact on cash flow, and too much working capital tied up and unavailable for other initiatives. Too little inventory results in missed sales, lost customers, and poor service. Strategic planning ensures companies have alternative sources of parts and supplies along with balanced inventory levels.
