Supply Chain Leaders do not Know their ABC's!

I recently created this quiz on LinkedIn about the best strategy for managing low demand C items. Out of 87 votes, only 24% selected the correct response, which suggests that there is a definite knowledge gap on this important topic.

Although C items generally contribute about 5% of revenue, they account for about 50% of our items. So, selecting an appropriate strategy will certainly take complexity out of your supply chain.

Here was the quiz and the responses:

Which of these strategies is appropriate for your low demand finished goods?

Kanban 30%

Statistical forecasting 23%

Customer Collaboration 23%

Centralize inventory storage 24%

Respondent Profile

• Incorrect Answer

Director and Above 72%

Analyst to Manager 28%

• Correct Answer

Director and Above 50%

Analyst to Manager 50%

Here was my explanation

Correct Answer: Centralized Inventory Storage

From 87 votes, 24% selected the right option, that is Centralized Inventory Storage. Why? C items have low demand, which makes them hard to forecast. So, the more decentralized your storage of these items, the lower the demand, and your job just became harder. By centralizing their storage, your forecast accuracy improves, which will lead to less costly inventory imbalances. Since C items only account for 5% of demand, the longer lead times caused by this strategy should not impact revenue, but will certainly improve your bottom line.

Most Popular Response: Kanban

The most popular response, kanban, is not correct. Generally, kanban works better with steady demand, whereas C item demand is typically quite volatile. Statistical forecasting is incorrect.

Other Responses: Statistical Forecasting and Customer Collaboration

• Statistical forecasting works better with items with low demand variability
• Customer collaboration should generally be practiced with high demand items, especially if they have high demand volatility. This collaboration takes significant effort, so you want to save it for your more critical items.

What do you believe should be the key takeaways from these results?