Impact Analysis of Supply and Demand Variability on Inventory Deviation

The shortage or excess of components at a logistics centre is a combined outcome of the component level forecast provided to the suppliers by the manufacturing company and the actual supply of the component received from the supplier. The demand planning group shares the forecast with procurement group. The procurement group plans the supply based on the forecast and inventory information. However, the forecast can differ from the actual consumption. Similarly, the actual supply can be significantly different from the expected supply. Both supply and forecast variations have an impact on the inventory levels. However, it has been hard to point the mix of the supply and forecast variations on absolute scale and also it has been hard to tie the demand and supply variations on the inventory deviation. Inventory Deviation analysis technique helps the business find the demand and supply variability and also helps in measuring the individual impact on the inventory deviation. This technique is aimed to separate the performance of procurement of components from that of the performance of the forecast of the component. It has been applied to Dell which operates on a configure to order background. Details of this analysis approach have been discussed in the paper