Balancing Inventory with Cost for Greater Flexibility
Alternatively, the Cost | Capital dimension of the River Rock Advisors 3D-Ops Model℠ framework factors in sourcing, inventory management, and use of capital when demand is uncertain and purchasing decisions become more difficult. The goal is to better balance procurement costs with inventory capital employed, yet give agility needed in times of disruption.
For example, sometimes decisions based on the lowest purchase price create excess inventory. Decisions based on minimal order quality can lead to stockouts and costly replenishments. To achieve procurement productivity improvements, you can assess different factors and look through different scenarios to find the optimal balance and minimize risk.
We typically conduct the following analytics to get to the root cause issues that need to be addressed in the Cost | Capital dimension:
- Procurement cost, lead time, and agility trade-offs
- Situational economic order quality
- “Newsvendor” procurement situations
- Manufacturing and distribution scheduling attainment improvement implications
- Cost | Capital RRApid℠ assessment
