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Many argue that the focus point (and perhaps the linchpin) of successful supply chain management is inventories and inventory control. So how do food and agribusiness companies manage their inventories? What factors drive inventory costs? When might it make sense to keep larger inventories? Why were food companies quicker to pursue inventory reduction strategies than agribusiness firms?

In 1992, some food manufacturers and grocers formed Efficient Consumer Response to shift their focus from controlling logistical costs to examining supply chains (King & Phumpiu, 1996). Customer service also became a key competitive differentiation point for companies focused on value creation for end consumers. In such an environment, firms hold inventory for two main reasons, to reduce costs and to improve customer service. The motivation for each differs as firms balance the problem of having too much inventory (which can lead to high costs) versus having too little inventory (which can lead to lost sales).

A common perception and experience is that supply chain management leads to cost savings, largely through reductions in inventory. Inventory costs have fallen by about 60% since 1982, while transportation costs have fallen by 20% (Wilson, 2004). Such cost savings have led many to pursue inventory-reduction strategies in the supply chain. To develop the most effective logistical strategy, a firm must understand the nature of product demand, inventory costs, and supply chain capabilities.

Firms use one of three general approaches to manage inventory. First, most retailers use an inventory control approach, monitoring inventory levels by item. Second, manufacturers are typically more concerned with production scheduling and use flow management to manage inventories. Third, a number of firms (for the most part those processing raw materials or in extractive industries) do not actively manage inventory.

In many ways 2015 was a momentous year for the supply chain and logistics industry in terms of acquisitions and innovations. Prof John Manners-Bell looks ahead to 2016 to see what should be expected…

1. US drives world economic growth and trade

The United States will drive the global economy in 2016 which will mean that US logistics companies will continue to prosper, both at home and abroad. The stronger dollar that has been evident at the end of 2015 will obsorb in imports from around the world, which will give Asian and European exporters a welcome boost and strengthen transpacific shipping volumes in particular. However, emerging markets have been forced to increase their interest rates which will have a detrimental effect on already struggling economies. China is experiencing a relatively hard landing in terms of falling economic growth, but it will be supported by the growth of the US economy for exports and its e-commerce market has seen staggering growth despite the economic situation. Also helping the global logistics industry will be a recovery in Europe, which is proceeding better than many economists expected.

Whether the finished product is a smartphone, a shirt or a sapphire ring, tracing component parts back to their original sourceslong has proved an elusive quest.

It should come as no surprise that Atlanta and Georgia are among the world’s busiest supply chain management hubs. After all, before Georgia’s capital city was called Atlanta or even Marthasville, it was known as Terminus and provided the major railroad connection between the Port of Savannah and the rest of the country.

Thanks in no small part to the port, the major rail lines that still exist in Atlanta and the world’s busiest airport, Georgia provides the backdrop for the efficient movement – both in and out of the country — of an untold variety of goods. With that movement comes lots of jobs for you in logistics, transportation, purchasing, material handling and supply chain management, among many other areas.

“What’s interesting about Atlanta is it’s probably one of the world’s broadest supply chain and logistics marketing spots for hiring people,” said Tim Brown, managing director of Georgia Tech’s Supply Chain & Logistics Institute. “It’s because of the airport and air cargo and huge rail yards, plus this is probably the world’s hub for supply chain technology.”

CONTRIBUTION BY STUART EMMETT – FREELANCE INDEPENDENT TRAINER AND CONSULTANT WHO TRADES UNDER THE NAME OF LEARN AND CHANGE

First of all, let’s look at a summary of what a systems thinking view tells us about the supply chain. Some of this will be well known, so others parts maybe new. However, the main message is to note and be aware of the multiple inter connections and inter dependencies.

1. The supply chain is a process that has a purpose.
2. The process is either, the transformations (inputs-process-outputs) into products /services;  and/or,  the positive and negative feedback from the  output transactions that may change the inputs, outputs and/ or processes
3. All of the supply chain processes have dependency, variability and interfaces (e.g. an interplay of relationships) as
4. Supply chains will change in response to feedback (as shown in the well known Forrester effect on inventory amplification, for example, as shown in the “Beer Game”)
5. Besides feedback, supply chains also function with the interactions in and between its parts. Tinkering only with the parts will sub optimise the whole, as the whole is formed by the sum of the parts. Additionally when focussing only on the parts, the whole is not being fully considered, (consequently, the purpose and meaning for the whole is now lost and is possibly, unachievable; effectively, the original purpose has been changed).
6. The parts have to be arranged in specific known ways to make the required wholes that will achieve a specific purpose; therefore we must fully understand the connections and interactions of the parts when we look at the required wholes.
7. This will involve a consideration of not only our own whole system, but also the wholes of the others and the connections to purpose, processes, structures, as well as the power and the people aspects.

The above link usefully into my earlier Supply Chain Rules 1-3 (from Emmett 2005; “The Supply Chain in 90 minutes”)

SUPPLY CHAIN RULE NUMBER 1: “WIN THE HOME GAMES FIRST”

Many companies start into Supply Chain Management, by working “only,” with the closest suppliers and customers. They should however, first ensure, that all of their internal operations and activities are “integrated, co-ordinated and controlled.”