In our last blog article, we talked about how today’s advanced planning technology can help with managing risk in a supply chain (read: Use Advanced Planning To Manage Supply Chain Risk). More importantly, we talked about how uncertainty (i.e. risk) in the supply chain, most often, leads to imbalances in the inventory levels. The following table was used to show how common supply chain issues lead to either too much, or too little, inventory at different points in the supply chain.
The good news is that many of the most frequent risks, and their impact on inventory levels, are quantifiable. For example, most companies have a good idea as for how reliable major suppliers are, how often certain machines break down, or how accurate are their demand planning & forecasts. Furthermore, the negative effects that indirectly propagate to other parts of the supply chain can also be considered. For example in Japan, many of the suppliers who were not directly damaged by the recent earthquake, still felt the ripple effects of difficulties in procurement of raw material, shipping Finished Goods, and other logistical problems. These too, can all be calculated with a proper supply chain inventory model.
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