The tradition interpretation of the inventory level/customer service curve is flawed. This page explores the logic for a much more robust and beneficial version of the trade-off curve.
I was managing a large distribution center for a major consumer products company. We were using state-of-the art planning tools: exponential smoothing forecasting, MRP and promotional order offerings designed to provide fairly long lead times. Despite the use of these tools, we had substantial backorders on shipments going out the door and at times, the DC was so full, we had difficulty finding space to put incoming product away. Being a curious person, I started learning about our systems and production and inventory control (P&IC).
As I learned about P&IC, I observed that our operations and performance were not behaving the way you would expect based on the P&IC body of knowledge. One concept I found in the literature was the inventory level/customer service curve that indicated that there was always a trade-off between inventory investment and service levels.
The Inventory Curve with range of opportunity.
As I thought about this relationship in light of the operations I was managing, it became obvious that we were provided a marginal level of service, but had inventory investment far greater that was required for that level of service.
The key insight was that we were operating inside the curve, not on it and that we had the opportunity to simultaneously reduce inventory investment AND increase customer service. The real opportunity was not an "either/or" trade-off but an opportunity to improve in BOTH areas. Nothing in the literature had addressed this view.
If you have questions or would like to discuss how these or other supply chain concepts and ideas can be applied within your organization, you may contact me at David.Armstrong@inventorycurve.com.
Looking at inventory performance improvement through a different lens.