60 seconds with ... Steve Sensing, Ryder System Inc.

Steve Sensing on how much inventory is enough.

By Staff -- Modern Materials Handling, 2/1/2005

You have to look at inventory levels across a company's entire supply chain from manufacturing to the distribution center.

Now, the equation to get there is complex. It's driven by the company's business model and customer service standards. Ultimately you want to have on hand the minimum amount of inventory to service customers as they expect to be serviced.

Factors to consider include: raw material transit time to manufacturing, manufacturing capability, transit time from manufacturing to the distribution point, sales forecasts, and, of course, customer service demands. Each is a piece of the equation, and the sales forecast is usually the toughest to pin down.

It's also important to accept the fact that you can't plan for every contingency. It just isn't possible. So it's vital to communicate across many departments—manufacturing, purchasing, customer service, sales and distribution—to strike a balance between them as conditions may change daily. And the biggest challenge is getting people to focus on optimizing the entire supply chain, not just their silo. It's all about collaboration and partnerships.

That means you have to work in ranges. The way we break it down is there needs to be two to six weeks of inventory across the entire supply chain. The higher range is for product being made in Asia, and the lower range is for product from the U.S. and Mexico.

Ultimately, the DC typically holds a two-week buffer of inventory within its four walls. This strategy meets the demands of our customers' supply chain and their end customers' service requirements.