Forward deployed inventory (FDI) is a method of supply chain management that positions inventory closer to where products are in demand. Instead of keeping inventory centralized in one location, it allows companies to strategically place inventory in regional and local facilities that are closer to end customers or key markets.
Some advantages of FDI include:
· Faster delivery times
· Improved customer service
· Cost savings
· Enhanced supply chain flexibility
As FDI becomes increasingly relevant to the business landscape, it’s important to acknowledge the new challenges and complexities that arise.
Keeping track of inventory across multiple regions, markets, and locations requires new principles and technologies. Successful managers need visibility and the right tools to coordinate and replenish a network of warehouses.
Because the nature of a FDI supply chain is different from a traditional manufacturing supply chain, some legacy principles of inventory management can be ineffective and even harmful when managing FDIs.
There are 7 mistakes that are made during the planning and execution of a FDI supply chain that cost companies millions.
1. Choosing the wrong locations
Although a few extra miles may seem insignificant, the cost of distance, even a small one, can add up with every delivery and pickup. It’s critical to look at the locations you currently have plus any locations you’re planning to add in the future to consider their actual cost.
Expenses for a location go beyond rent, labor, and utilities. Leaders can forget to consider the impact of how far a location is from end customers.
For example, consider inventory that’s 20 miles away from your average location instead of 10 miles. If you’re using a delivery service, this could mean an extra $1 a mile multiple times a month or even a day. It also impacts the amount of time it takes drivers to deliver inventory. These added miles increase your cost regardless of whether it’s a third party doing the delivering or your own employees.
By analyzing the impact of each location, you’ll be able to determine your true costs more accurately.
2. Overstocking inventory
It may be tempting to stock every piece of inventory at every location, but this could be a costly mistake.
Holding too much inventory at one location can tie up funds that could be used for other business expenses. It can also cause companies to spend money on excess items that are in demand in another city. This mistake can result in stranded inventory and additional operational expenses. If the stranded inventory needs to be moved to a different city where it’s in demand, companies will spend even more money on reverse logistics.
3. Understocking inventory
While centralizing and limiting inventory may appeal to companies seeking cost reductions and more control, understocking inventory can lead to expensive consequences.
For example, it can result in high emergency delivery costs and decreased customer satisfaction. Resorting to express deliveries and first flight out can cause a substantial increase in delivery fees and may cause customer escalations that end up involving high-level executives like directors, vice presidents, and COOs.
While it is possible to make a strategic decision to limit inventory pushing, it’s crucial that companies understand the potential effects.
4. Changing inventory policies too much
Spending time and money on frequent rebalancing can indicate a weak inventory plan. Simply changing a policy on the chance that it might be better will only benefit your logistics provider.
Variability in demand and inventory levels is common, so rebalancing every time there’s a point estimate change can be costly and inefficient. Understanding variability will help companies know when an event is drastically different and warrants a change in policy. It’s more beneficial to stay on a plan until there is statistical evidence that the inventory policy should be changed.
At best, frequent rebalancing is costly. At worst, it’s harmful when inventory that should be available is in transit.
5. Not changing inventory policies enough
Maintaining old policies without periodic evaluation can be just as costly for businesses. If indicators are telling you to change something, it’s important to pay attention.
When a company doesn’t change inventory policies, they may end up holding onto excess amounts of unwanted inventory. This could lead to service failures if the business can’t fulfill other orders in a timely manner, and eventually a costly rebalancing effort if the problem persists over time.
Changes in the business environment could indicate to companies that they need to adjust their inventory policy. This could be from systemic changes, like the pandemic, or isolated changes like adding a new customer or noticing that demand for an item has disappeared. Those isolated changes can be difficult to observe, but sensitive tools can help leaders notice variations in the business environment and adjust accordingly.
6. Executing a plan without verification
Before investing time, energy, and money into an inventory plan, it’s crucial for leaders to verify their plans. While having a network of locations and associated costs is important, simply meeting inventory and service level goals on average is not enough.
There are many factors that can affect the success of an inventory plan, like variability in demand and other changes in the business environment. Ignoring these factors can draw businesses to make decisions that are not based on the full picture. Utilizing simulation tools to understand the possible outcomes of a plan is essential in avoiding costly mistakes. It’s best to go into an inventory plan with a clear understanding of the potential outcomes and how they may affect the business in the short-term and long-term.
7. Using the wrong metrics
Using the wrong metrics can give an inaccurate or incomplete picture of an inventory plan.
For example, if a company is planning for 95% service level. and it goes below that over time, it’s crucial they find out what is causing the failures. The right metrics will segment failures between planning and execution errors. A useful metric enables leaders to quickly diagnose and resolve the issues where they occur.
Additionally, using metrics that show results without opportunity will provide misleading information about the success of an inventory plan and lead to false confidence. Metrics that consider all the factors of an inventory system will help leaders identify opportunities for improvement.
If you’re interested in learning more about any of these problems, Edon Connect is here to help.
Take the first step toward optimizing your inventory management process. Email us at email@example.com to meet with a representative.
Edon Connect and Forward Deployed Inventory (FDI)
Edon Connect delivers solutions for FDI supply chains with the Edon Connect Platform and Edon Connect Operations. By utilizing the Edon Connect Engagement process, we can help companies evaluate a change to their supply chain in three steps: plan, verify, and execute.
Plan: Edon Connect will work with you to give you location and inventory options based on your service and cost requirements.
Verify: Edon Connect will complete a simulation to determine the robustness of the plan and the sensitivity to various changes in demand.
Execute: Edon Connect Operations has physical assets that can be utilized to manage or augment your FDI. You can also properly manage your FDI supply chain using Edon Connect performance metrics.