Supply Chain Inventory Management Process

Traceability to improve supply management. Industry analysts calculate that during 2000, American companies spent $1.6 trillion on supply-related activities, including the movement, storage, and control of products across the supply chain. The ability to reduce these costs often marks the difference between successful and failed firms. In the food industry, where margins are thin, supply management, including traceability, is an increasingly important area of competition. A firm’s traceability system is key to finding the most efficient ways to produce, assemble, warehouse, and distribute products.

Electronic coding systems, from the granddaddy barcode system to cutting-edge technologies like radio-frequency identification systems, are helping to streamline the U.S. food supply system. As technological innovation drives down the cost of these devices, more firms across the food supply chain are using electronic tracking systems. In some cases, buyers manage these systems to monitor internal supply flow. In others, firms establish systems that link suppliers and buyers, allowing them to automate reordering. Retailers such as Wal-Mart have created proprietary supply-chain information systems, which they require their suppliers to adopt.

Inventory-to-sales ratios are further evidence that U.S. companies are embracing new logistic systems to better control inventory flow. The ratio of private inventories to final sales of domestic business has fallen by half since the end of WWII. The same trend can be observed in many sectors of the domestic food industry, including natural, processed, and imitation cheese; cereal breakfast foods; and soft drinks and carbonated waters. In each case, the inventory-to-sales ratio fell, with the largest decline in the cereal sector, where the ratio fell from over 8 percent in 1958 to 3-4 percent in the early 1990s. This downward trend in inventories reflects growing efficiencies in supply management in the U.S. food industry, including traceability systems. This trend is expected to continue as food manufacturers continue to adopt technologies already in use in other industries.

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