Inventory Positioning

Unlike basic inventory control, which focuses on how much to stock, inventory positioning determines the physical location and distribution of that stock—a critical factor in balancing responsiveness with cost efficiency.

As supply chains become increasingly demand-driven and customer-centric, inventory positioning becomes a powerful lever to reduce lead times, optimize total system cost, and mitigate risk across multi-echelon networks.

Concept Explanation (Theory)

Inventory positioning involves determining the optimal nodes in a supply chain where inventory should be held. This includes:

1. Raw material stock at the supplier or factory level
2. Work-in-process (WIP) at manufacturing sites
3. Finished goods at central warehouses, regional distribution centers, or retail locations

There are three primary positioning strategies:

• Centralized Inventory: Stock is held at fewer locations (e.g., one national DC), enabling better aggregation, lower total inventory, and scale in operations—but at the expense of longer delivery lead times.
• Decentralized Inventory: Stock is distributed across multiple regional or local nodes to improve responsiveness and reduce delivery time—but increases total inventory and carrying costs.
• Postponement-Based Positioning: Keep generic inventory upstream and delay final customization or fulfilment until downstream demand is known—balancing risk and responsiveness.

Strategic positioning decisions must consider demand variability, lead time, transportation costs, service levels, and the product's velocity or value.

Operationalization

In practice, inventory positioning is a cross-functional planning task involving supply chain, logistics, finance, and commercial teams. Key considerations include:

• Service Level Requirements: Products with short lead-time expectations or high customer sensitivity (e.g., e-commerce, consumer electronics) often need downstream positioning.
• Demand Variability and Forecast Accuracy: High variability favors upstream positioning to buffer uncertainty at a central point.
• Inventory Cost Trade-offs: Holding inventory closer to demand improves service but increases carrying and obsolescence risk.
• Network Design and Node Capability: DC capabilities (e.g., throughput, space, value-added services) influence what SKUs can be positioned where.
• Product Segmentation: Use ABC or velocity-based segmentation to determine which products should be stocked at which location.

Advanced networks may use multi-echelon inventory optimization (MEIO) to model and simulate the best inventory positions across tiers, balancing global cost and service.

Excel for Inventory Positioning Analysis

Excel can support practical inventory positioning analysis in smaller or mid-sized operations:

1. Inventory Cost Comparison Tool

• Create a table with SKUs as rows and potential storage locations as columns.
• Input:
  • Holding cost per location
  • Transport cost from location to customer
  • Service time from each location
• Use Excel formulas to calculate:
  • Total Cost = Holding Cost + Transport Cost + Stockout Penalty (if applicable)
• Use MIN to find the lowest-cost location for each SKU.

2. Demand Heatmap for SKU Positioning

• Input customer order history by region and SKU.
• Use pivot tables to group volume by region.
• Apply conditional formatting (heatmap) to highlight high-demand zones.
• Use this to decide where high-volume SKUs should be stocked for fastest response.

3. Velocity-Based Inventory Strategy

• Input SKU velocity (orders per week), value, and variability.
• Classify SKUs using ABC or XYZ logic.
• Assign stocking location strategy:
  • A items → Regional DCs
  • B items → Central DC
  • C items → Made-to-order or upstream stocking

Power BI or Power Pivot can be used to build dynamic dashboards for visualizing SKU-location service vs. cost trade-offs.

Leveraging ChatGPT for Enhanced Productivity

Prompt for Strategic Planning:

“Help me define an inventory positioning strategy for 500 SKUs across 3 distribution centers. Consider service levels, transport cost, and demand variability.”

Prompt for Excel Tool Design:

“Build an Excel model that compares centralized vs. decentralized inventory positions for finished goods, including total cost, lead time, and fill rate.”

Prompt for Diagnostic Review:

“Analyze a supply chain where inventory is held at 10 regional DCs but service levels are inconsistent. What should I evaluate to optimize inventory positioning?”

Final Thoughts & Business Reflection

Inventory positioning is not just about logistics—it’s about building a resilient, cost-effective fulfilment model that supports business growth and customer expectations. By aligning stock placement with demand patterns, network capabilities, and service goals, companies can significantly reduce waste while enhancing speed and flexibility.

💡Is your inventory located where it adds the most value—or just where it has always been? Re-evaluating positioning can unlock hidden efficiencies and improve overall supply chain responsiveness.