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How to differentiate between fat and muscles in Supply Chain?
Our body needs a healthy ratio of fat and muscles. Both are absolutely essential for us. While fat is required for survival during disruptions (when we run out of food), muscle is required for agility in movement. Similarly, supply chains also need a healthy ratio of fat and muscles.
Surplus inventory, beyond the normal expected demand during RLT, is fat, which comes in handy only when demand peaks to its maximum. It is essential as it covers our inefficiencies in terms of poor backend flexibility and responsiveness. If we cut this fat without improving our underlying capabilities, we are likely to end up with stockouts.
We have the option to convert some of this fat into muscle by developing the capabilities of flexibility and responsiveness. It explains why agile companies, with well-developed muscles, can operate with low fat. On the other hand, companies low on agility operate with a lot of fat to avoid stockouts.
The choice is yours… Develop your supply chain to be agile like a warrior (low fat, high muscles) or a couch potato (high fat, low muscles)…