In today's highly competitive electronics manufacturing industry, strategic inventory management is a critical component of success-but can also be the industry's Achilles heel. Maintaining the critical balance between carrying too much inventory and not having enough remains a tough challenge.

The Problem

Inventory management means having the right parts, in the right place, at the right time. Here's a scenario all-too-familiar to many manufacturers: The inventory target for a critical component is set to 10- days-of-supply for every stage in the supply chain. Where

did this number originate? Ten-days-of-supply is a company rule-of-thumb; the way inventory management has always been done.

Ten days of inventory may be appropriate, but, when demand surges and a key supplier has a 15-day lead-time, the manufacturing facility is at the mercy of the supplier's schedule. The result is a critical shortage that brings the supply chain to a halt. On the other hand, holding unused inventory is not a favorable alternative.

What if a way to truly know how much inventory can be held at every stage of the supply chain existed?

Optimization is the Solution

Optimization technology allows a company to build in supply chain flexibility to better meet top goals-improved customer service, the lowest cost and the shortest time-to-market. Such technology is an efficient way to compare the hundreds of factors influencing on-time delivery and inventory levels at all locations.

Current supply chain optimization applications leverage powerful mathematical models to simultaneously evaluate the entire supply chain, incorporating key drivers of supply chain performance, such as production cost, demand variability and interdependencies, to identify the management solution. Optimization applications, when deployed in an Internet-based infrastructure, support collaborative decision-making and information exchange to leverage existing company, supplier, partner and product data. For maximum performance, optimization applications should be built on open-standards technologies, be simple to use and should support leading supply chain and enterprise systems.

Four main factors fuel the need for optimization:

1. Demand variability-unexpected spikes in customer demand inevitably force manufacturers to dip into buffer inventories.

2. Supply uncertainty-limited capacity, supplier delays and critical parts shortages are facts of life in the manufacturing business. But manufacturers can plan for such uncertainty.

3. Lack of coordination and communication across the supply chain-supply chain managers often make decisions in isolation. Such decisions are often based only on local or functional information and metrics, which can inevitably lead to other departments bearing extra costs.