This post concludes my inventory management blog series.
Throughout this series I’ve proposed an elevated role for the inventory manager that challenges the assumption that an inventory manager is a victim of his colleagues’ business decisions and plays only a limited role in formulating inventory results. Inventory management is not a stand-alone business process that occurs after other processes are complete. It is a high-level process that should be integrated into other supply chain planning processes including, at a minimum, sales and operations planning, master production scheduling and supply action management. Inventory managers should support multiple business objectives and should have business integrated targets related to inventory levels, customer service levels, total inventory cost, and inventory quality.
The inventory manager needs to act like an air traffic controller, effectively collaborating with his management peers to guide and coordinate their processes together in a way that leads to optimized inventory results. They should be able to update safety stock and order policy settings, and they should be able to collaborate on improvement initiatives related to lead-time optimization, supply and demand variability, and supply chain agility. It’s important for the inventory manager to have strong analytic skills and a deep understanding of the principles of supply chain management as a successful inventory manager will understand how to meet his targets without negative consequences in other areas of the business. The company should support the inventory manager with access to continuous learning resources and development courses to ensure they stay current and can take advantage of recent industry advancements.
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The modern day inventory manager described in this series is the backbone of your company’s inventory planning process. She has a strong understanding of supply chain fundamentals and is an expert at controlling the key levers impacting the inventory company’s investment in inventory. All that’s left is to add a planning system that enables her to work effectively. If you leave her to build reports and metrics that she needs in excel then she’ll spend all her time crunching numbers instead of planning your company’s largest asset. So, what features should you look for in a good planning system?
- All your data’s in one place. Your planning system should combine all your company’s data in one system. It should be up-to-date (daily at a minimum), and include all the input data required to make your inventory planning decisions.
- Closed Loop. If you don’t execute with your planning system, there should at least be a closed loop between the systems so you don’t spend all your time transcribing after making a decision.
- Built in reporting systems should immediately alert your inventory manager to changes requiring response. Agile response can make all the difference.
- Your inventory manager needs a dashboard that can give her a clear picture of the current status of the inventory plan and provide insight that guides her actions each day. It’s also useful to have more in-depth tools that provide a visual representation of a wide array of metrics simultaneously to help identify concerning trends and improvement opportunities across all the levers in her toolbox. While it can be hard to find time for it, exploratory analysis often pays big dividends.
- I covered this last week, but I really can’t stress enough how important it is to select metrics that support all of your business goals. It’s important that the impact of you planning decisions are visible across all parts of your organization. These metrics should be using live data, and you should instantly see the results of the changes you make.
- Interactive charts and graphs. The metrics on your dashboard should be interactive to enhance their analysis value. You should be able to hover your mouse over charts to read key figures, and you should be able to drill into the details with a single click. Metrics should update immediately when you make changes and you should be able to filter the input data to dig in to areas of concern.
- Hierarchies. Data hierarchies allow you to see your data at various levels of aggregation. Imagine being able to see your metrics at a global, regional, country, or site specific level with a click of the button. Hierarchies can be built into dashboard and reports to allow instant filtering to look at key details.
- What-if scenarios allow you to immediately calculate the results of changes you make so you can evaluate the results before committing the changes to your master data. You can easily lose a whole day if you have to wait for your ERP system to refresh overnight before you can understand the impact of a settings change.
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Over the last several weeks, this blog series on Inventory Management has explored the objectives and roles of inventory managers and outlined several of the improvement levers available to them. This post will discuss some of the metrics and analysis tools that an inventory manager needs to identify risk and opportunities and to make intelligent decisions to optimize the performance of their inventory.
When determining the metrics required for any business process, the first question you need to ask yourself is, “What are the business goals of the process?” Once you can answer that, you need to understand where the business process fits into the organization. What processes are upstream of your current process? Who relies on the outputs, and what are their priorities? These are all important questions to help you select metrics that facilitate a balanced decision making process and allow you to understand the trade-offs between proposed scenarios.
The metrics you choose should answer the questions your organization is asking, without requiring additional analysis. If you find your organization spending too much time completing repetitive ad-hoc analyses, you may want to re-evaluate your metrics. Each metric requires context. This could be a target level, or simply historical data that allows the reader to understand how the current situation compares to the ideal. Your dashboard metrics should highlight issues requiring immediate action and should be supported by details that can tell the whole story. If your organization wants advice on data visualization techniques for dashboard design, communication, or analysis purposes, I highly recommend checking out the work of Stephen Few.
So, what do you need to measure to manage your inventory?
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So you’re an inventory manager, and your CFO just asked you to reduce inventory by 10% before year end to free up some capital for next year’s big investment in R&D. At first glance, it’s not so bad; you’ve got nine months to do it. But then you look at historical trends and see that lately, your inventory has been growing by 3% each quarter. Suddenly, you need to be about 20% below your current year end plan! That’s a big challenge! On top of that, you know you’d better do it without negatively impacting your customer service levels, because you can’t afford to spend all your time fighting fires for your customer service representatives.
So, what improvement levers can you pull to accomplish this goal? Do you have the authority to act on your own? Even if you don’t, you can be sure that you’ll be held accountable anyway!
Below are five levers that I believe should be available to an inventory manager to help them effectively plan and manage inventory. I’ll refer to Figure 1 below, a simple representation of the inventory of over time for a single part with safety stock, to explain the impact that each lever can have on your inventory levels.
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Managing inventory can be a challenging job! Inventory managers have to balance multiple conflicting priorities, support multiple internal and external customers, and are typically responsible for millions of dollars spread across multiple sites. They often manage their company’s single largest asset and receive little thanks for their efforts.
Unfortunately, many inventory managers don’t have the tools necessary to meet these responsibilities effectively. Supply chain complexity is increasing as companies find new ways to provide value to their customers. The inventory manager needs tools to exploit this complexity to get the most out of your inventory investment. All too often inventory managers are stuck spending all their time building reports and urgently responding to the latest shortage. They become experts at transferring and reallocating inventory to put out the latest fire, but can’t always track the true impact of their actions on the organization. Training and professional development is often sidelined to maintain focus on daily issues.
As companies increase the maturity of their inventory management process, the role of the inventory manager often evolves. The best planning systems provide users the ability to visualize and plan their inventory, monitor their inventory performance, predict issues before they happen, and prescribe improvements to maximize the benefits of your inventory. Once a plan is set, the system should alert the inventory manager so they can effectively respond where adjustments are required. With the right tools and training the inventory manager can evolve from a firefighter to an air traffic controller and become an expert at manipulating the levers that set a company up for success, not just today, but 3, 6, and 12 months from today.
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Inventory is often the single largest asset on a company’s balance sheet and your inventory management process can have a huge impact on your organization’s bottom line. Understandably, the inventory management process is getting a lot of attention by organizations looking to squeeze out some extra profit in a challenging marketplace.
When you think about the priorities of your inventory management process, what’s the first thing that comes to mind? Is it reducing excess and obsolete? Improving on time delivery performance? Balancing stock between distribution centers? Strategic reduction of your lead times to help obtain and fulfill more customer orders? Now what’s your next priority? And the one after that? Your first answer is likely dependent on your industry, the size of your organization, your role, and your company’s corporate strategies. Your second answer, if you have one, is typically dependent on the maturity of your inventory management process. Finance and business management will prioritize inventory reduction to increase profitability. Customer service representatives prioritize stock-out reductions to improve customer satisfaction. Manufacturing operations needs just the right parts available at just the right time. The inventory manager is often caught between multiple groups with conflicting priorities and becomes an expert firefighter, skilled at supporting whoever complains the loudest. It’s easy for an inventory manager to get tunnel vision and give one metric too high a priority over others.
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Did you know it costs approximately $100 to send an envelope from Ottawa, Ontario, Canada, to Caracas, Venezuela? That’s for three to five day service! New York to London? That will cost you $50 to $100, but it’ll get there overnight. Of course, we’re not only paying to get that envelope from point A to point B, but for a certain level of service as well. What if you don’t require the highest level of service, but still want to avoid the nightmares of dealing with national snail mail companies? (To be fair, Canada has had its share of mail nightmares in the past).
A popular subject in several expat Facebook groups is checking to see who’s planning on flying back to their origin country, and whether those individuals would mind taking along a little extra cargo. I’ve been part of a few of these groups. It usually starts with someone asking for it as a favor, but some, particularly if it’s something bigger than an envelope, offer to pitch in a few bucks to help cover the checked baggage fees. In a way, travelers are informally monetizing what we might call their unused capacity. Upon arrival, they’re usually met by the intended recipient at the airport, or occasionally will agree to meet at more central location, or even relay the package to a local courier to complete the shipment.
So, when I read about Roadie, a startup whose business model is about providing a platform to enable people to monetize their otherwise wasted capacity in the trunk of their cars, I had one of those “about time!” moments. Granted, it’s not the budget-friendly cross-border air shipping service I dream about for my occasional need to send documents overseas, but I hope it might pave the way for it.
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Our partner Celestica recently published the following article, ‘Staying Ahead of Today’s On-Demand Market: Push Versus Pull Strategies.’ The author, Robert Rejano, Processes and Applications Advisor, Celestia, discusses the key differences between push and pull strategies and their impact on the supply chain.
Rejano asks ‘So why does technology even matter when supply chain principles haven’t really changed in decades?” We explore the answer.
You can start the show… whenever you’re ready
Using an interesting analogy centered on the rapidly changing television industry, Rejano suggests push strategies are akin to old analog rabbit ears – you can watch the programs you’re interested in, but only when the network decides to air them. Pull strategies are more like today’s on-demand options. Think digital video recording (DVR) and online streaming. They allow you to choose what you want to watch, and when you want to watch it.
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