By Paul R Salmon FCILT, FSCM
In the face of stockouts, the knee-jerk reaction for many organisations is to increase purchasing and build bigger buffers. After all, more inventory means fewer shortages—right? Not quite.
While this approach might temporarily ease availability issues, it often creates a new set of challenges: higher costs, inefficiencies, and in extreme cases, logistical gridlock. In today’s volatile and uncertain world, the real competitive edge lies not in stockpiling but in optimising inventory. This article explores why optimisation beats over-ordering and provides real-world examples from both the commercial and defence sectors.
The Illusion of “Just Buy More”
At first glance, buying more stock appears to be the simplest way to avoid stockouts. But this “solution” is a double-edged sword:
1. Tied-up Capital
Excess inventory locks working capital that could be deployed for innovation, expansion, or strengthening supplier relationships. For commercial companies, this means slower growth. For defence, it can limit funds available for critical capabilities and new platforms.
Example:
In the retail sector, a global electronics company over-purchased components during the 2021 semiconductor shortage. When demand normalised, it was left with a surplus of outdated chips worth over $500 million, eroding profitability.
2. Rising Storage and Handling Costs
Warehouses fill up fast. The more inventory you hold, the more you spend on space, staffing, utilities, and insurance. In some cases, organisations end up paying for emergency offsite storage.
Defence parallel:
In Afghanistan, ISAF forces stockpiled vast quantities of equipment and spares in theatre “just in case”. The result was sprawling depots, expensive to operate and vulnerable to supply route disruption.
3. Obsolescence and Waste
Products have finite lifespans. Excess stock often ends up expired, outdated, or damaged before it can be used.
Example:
A pharmaceutical distributor in Europe built large safety stocks during COVID-19 to prevent shortages of critical medicines. Post-pandemic, it had to write off millions in expired stock.
Defence equivalent:
The UK Ministry of Defence once stockpiled large quantities of spares for a particular aircraft fleet. When the platform was retired earlier than planned, hundreds of containers of unused parts were scrapped or sold at a fraction of their value.
4. Hiding the Root Cause
Over-ordering masks underlying problems like poor forecasting, unreliable suppliers, or demand volatility. Instead of fixing these, organisations often kick the can down the road until the issue re-emerges—this time bigger.
The Case for Inventory Optimisation
Inventory optimisation is about striking the right balance between availability, cost, and risk. It requires a data-driven approach, robust processes, and alignment across the supply chain.
Here’s why it’s critical:
✅ Better Forecasting = Smarter Stocking
Advanced analytics and AI can provide demand forecasts that account for seasonality, market shifts, and external disruptions. Instead of reactive stockpiling, businesses can proactively adjust stock levels.
Example:
Zara, the global fashion retailer, uses near-real-time sales data to dynamically adjust inventory levels across its stores. This enables it to operate with leaner stock while maintaining high availability.
In defence, modern Integrated Logistics Support (ILS) tools like OPUS10 allow planners to model spares requirements for complex systems across operational scenarios, ensuring the right items are held in the right quantities.
✅ Dynamic Replenishment Models
Gone are the days of fixed reorder points. Techniques like Vendor Managed Inventory (VMI), Just-in-Time (JIT), and Demand-Driven Material Requirements Planning (DDMRP) enable supply chains to respond to real demand in real time.
Defence innovation:
The US Department of Defense piloted additive manufacturing (3D printing) at forward operating bases, reducing the need to hold bulky spare parts in theatre. This shift from stockpiling to on-demand production reduced inventory levels while increasing agility.
✅ Lean Inventory Reduces Risk
A lean approach minimises not just cost but also operational risks. With less stock, organisations are less exposed to obsolescence, theft, and storage issues.
Overcoming Common Barriers
Transitioning from “buy more” to “optimise” is not easy. Organisations face barriers like:
Cultural resistance: Stakeholders often equate more inventory with safety. Data challenges: Poor quality data undermines forecasting and optimisation efforts. Supply chain fragility: Long lead times and single-source suppliers make lean inventory seem risky.
Addressing these requires strong leadership, improved data governance, and collaboration with suppliers.
Defence-Specific Considerations
In defence, inventory optimisation has unique challenges. Planners must ensure readiness for unpredictable operations while managing tight budgets. Stockpiling is tempting, but impractical for expeditionary forces and expensive platforms.
Success story:
The Royal Air Force’s implementation of Predictive Maintenance on the A400M has allowed it to move away from holding large spares packs at each base. Instead, parts are shipped as needed based on real-time condition monitoring. This reduced inventory by 20% without compromising availability.
Getting It Right: Key Principles
Understand True Demand Separate noise from signal. Plan for variability, but don’t overreact to every fluctuation. Invest in Visibility End-to-end supply chain visibility enables proactive adjustments to inventory levels. Segment Your Inventory Not all items are equal. Use ABC or criticality analysis to prioritise optimisation efforts. Strengthen Supplier Relationships Collaborate with key suppliers to improve lead times and reliability, reducing the need for buffer stock. Embrace Digital Tools Leverage AI, digital twins, and simulation models to test scenarios and make informed decisions.
Conclusion: The Right Stock, Not More Stock
Stockouts can cripple operations, but overstocking is not the answer. The future belongs to organisations that can balance availability, cost, and risk through data-driven inventory optimisation.
In both the commercial and defence worlds, the goal is the same: ensure the right inventory is in the right place at the right time. Anything more—or less—is waste.
As the world grows more complex and supply chains more interconnected, optimisation is no longer optional. It’s a strategic imperative.
