The calculation and use of inventory “carrying costs” is a standard leading practice in supply chain management. In a recent multi-industry benchmarking survey, more than 78% of the respondents indicated that they calculate and apply this metric. More than half indicated that they use the metric to make inventory management decisions. Similarly, a study of supply chain management software found that the most frequently used module was the inventory optimization and replenishment module which uses inventory carrying costs to estimate optimum levels of inventory for each item. Eighty-five percent of the respondents currently use, or plan to use, this module as part of their supply chain management operations.
Unfortunately, the use of this metric is less than in most industrial sectors due to the regulated nature of the industry. Nevertheless, we believe that the metric is an important component of any leading supply chain operation and should be widely adopted within the utility industry.
ScottMadden, experts in the electric and gas utility industry, has a deep understanding of the key performance levers for efficiency and effectiveness in the electric and gas utility industry.
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