Too much inventory or not enough?
It’s the eternal struggle at the heart of effective supply chain management, but it’s an equation organizations continually get wrong.
It’s a typical situation; a business holds too much inventory, so attempts to reduce it, inventory is cut to an acceptable level, only to find, a few weeks later, customers can’t get the products they want. So ramp up and buy extra for the next few months. The result? They end up with more inventory than they started with.
But it doesn't have to be like this. Just follow these simple tips:
But it doesn't have to be like this. Just follow these simple tips:
• Understand your inventory. Trying to remove inventory without tackling the root cause is like tackling the symptoms of an illness before the diagnosis. First you must understand why it’s there in the first place. The inventory you hold today is typically a consequence of the decisions made months, years, even decades ago – many of which are forgotten with the passage of time.
So understanding what you have and why you have it is the first step.
So understanding what you have and why you have it is the first step.
• Look to the future. To avoid making the same mistakes as your predecessors, you need to look beyond the immediate execution window and consider all supply variables before making decisions. An integrated supply management process can help to achieve this. An Integrated ERP Solution is the heart of this and having good data is key to being able to look to future goals.
• Remember the great unwatched. All too often organizations rush straight in to removing visible inventory (cycle stock, safety stock, pre-stocking and hedging stock), when it’s on the rest - the great unwatched - which can make up as much as 25 per cent, where efforts should be concentrated.
• Consider your service offering. In an ideal world every organisation would have 100 per cent service levels; the reality is many can ill afford this and have to settle for 93 per cent at best. (One standard of deviation , see our inventory management posts if you have no idea what this means)
A small drop in service levels can have a significantly positive effect on inventory levels, although of course for some this is not an option. Performance benchmarking can determine what an acceptable service level for the market is. and you can alway build in outriders based upon customer needs and market analysis.
A small drop in service levels can have a significantly positive effect on inventory levels, although of course for some this is not an option. Performance benchmarking can determine what an acceptable service level for the market is. and you can alway build in outriders based upon customer needs and market analysis.
• Change your cycle time. Long purchasing cycels can aid operating efficiency, but result in cycle stock. Consider making half as much, twice as often; this can result in a company not only becoming more responsive to the market, but also significantly reduce cycle stock. Think amazon prime and next day what you can as long as it's not impacting performance really look at if this item needs to be stocked or adding an additional day to bring it in and turn it around. The MDS-Nx Next Day Vendor Shipment management function lends itself to giving you to tools to manage your new virtual inventory.
• Invest in safety capacity. Most organisations see inventory as their only option to buffer poor supply performance and provide the flexibility to satisfy unforecasted demand. But investing in safety capacity can be a cheaper option; reducing planned capacity slightly and having the ability to ramp it up when demand requires can provide a good alternative. For those items where a next day cycle doesn't work or it may be speculative look at automatically increasing the safety stock levels. This allow for more of an item that will sell eventually and provides better service levels to your existing customers.
• Invest in safety capacity. Most organisations see inventory as their only option to buffer poor supply performance and provide the flexibility to satisfy unforecasted demand. But investing in safety capacity can be a cheaper option; reducing planned capacity slightly and having the ability to ramp it up when demand requires can provide a good alternative. For those items where a next day cycle doesn't work or it may be speculative look at automatically increasing the safety stock levels. This allow for more of an item that will sell eventually and provides better service levels to your existing customers.
• Vary your safety stock. Many businesses carry a generic weeks coverage model of safety stock for every product in their portfolio, but it’s important to consider the significance of each product. Some popular products may require a lower level of safety stock, whereas others with higher variability require more. on a supplier or vendor basis it's important to track lead time as well as on time performance for a 100% on time next day vendor you can almost eliminate safety stock saving you both warehouse space and money.
• Effect cultural change. It’s vital that demand and supply take joint ownership of inventory. For this, you must eliminate blame culture. Plenty of people are involved in inventory management; from those who effect financial change, to those in planning frequency and safety stock. These people are the organization’s most powerful weapon when it comes to inventory management, so clearly define their roles and equip them with the knowledge to apply best practices. Think about a reward program the integrate sales and purchasing allowing them to collaborate to decrease carrying costs and stockouts together.
For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to sales@tshinc.com
