The third set of RightChain™ decisions work in the area of supply. Supply is the process of producing or acquiring inventory sufficient to meet the targets established in inventory planning. The objective of supply management is to maximize the financial performance of production and/or acquisition while meeting the availability, response time, and quality requirements stipulated in the customer service policy and the inventory strategy. Since we have to make up gaps between supplier service and customer service with excess inventory and/or excess transportation costs, we need high performance suppliers who have the same (or greater) passion for customer service that we do.
Optimizing supply (RightBuys™) includes supplier valuation (RightCard™), supplier optimization (RightCore™), supplier service policy (RightTerms™), sourcing (RightSource™), and supplier integration (RightLinks™). Those activities and their related decisions have a major impact on inventory requirements. Inefficient and unreliable suppliers with unpredictable leadtimes require us to carry excess inventory to cover their unreliability. Efficient and reliable suppliers supplying fast moving items with predictable demand allow us to take advantage of inventory reduction strategies such as cross docking and non-stop putaway.
Of all the supply-based decisions, sourcing, the allocation of business to suppliers and the related choice of purchasing terms, has the greatest impact on inventory. Unfortunately, of all the groups working in supply chain management, the sourcing and procurement organization is the least likely to be trained in inventory and supply chain management. To help make the connection in one client engagement, I recommended that sourcing and procurement move from their posh offices at headquarters to a set of cubicles in the warehouse overlooking the receiving dock. It was highly unpopular but highly effective. The people making the decisions could literally see (and sometimes hear and feel) the impact of their decisions.