Last week I attended the IBF Business Planning, Forecasting & S&OP: Best Practices Conference in Orlando, Florida. If you’re involved in your company’s sales & operations planning processes and you haven’t heard of the IBF, stop reading now and go check them out here! These guys bring supply chain rookies and the best-of-the-best together to talk forecasting and S&OP in a variety of different forums throughout the year.
This year’s conference was a great opportunity for me to talk with demand planners and other supply chain practitioners about their S&OP journey, and the common pitfalls along the way.
A big theme of the conference this year was that to be effective with S&OP, it’s important to focus on three pillars of success:
- People – It’s important to continually invest in your people to generate a competitive advantage because you rely on them to be the care-takers of your supply chain.
- Processes – Best practices in supply chain are continually evolving, but you likely face unique challenges in your business that require innovative solutions.
- Technology (enabler) – It’s tough to compete against your competitors’ supply chains without an advanced analytics tool designed to enable the S&OP process.
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If you’re a supply chain nerd like me, you’ve probably noticed that Tesla’s been making some pretty big waves in the auto industry. It seems Tesla is poised to be the first company to truly take advantage of a new market segment. People are looking for vehicles that are environmentally responsible, technologically advanced, safe, sexy, and affordable to the average Joe. Their new Model 3 meets all of this criteria, and has a range about double that of comparable vehicles. They’ve nailed the customer requirements so well that they’ve received over 320,000 pre-orders in the first week, even though deliveries aren’t slated to begin until the end of 2017.
To meet this demand, Tesla hopes to reach a production rate of 500,000 vehicles per year by 2020. Wait… what? 500K per year, but not until 2020? Even if they managed to accelerate their production schedule to achieve 500K per year at the end of 2017, they still have at least an 8 month backlog before they even deliver their first car. On the surface, this seems like an unprecedented supply chain challenge. Their level of success at building this new supply chain will make or break their business. To make it even harder, due to the incredible amount of money involved and the sex-appeal of the product, they’ll be undergoing their supply chain revolution with a level of public scrutiny normally limited to the latest iPhones!
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It’s 2016, and data is everywhere. Alphabet Inc., owner of Google, has recently become the world’s most valuable company, in a large part due to its ability to process enormous amounts of data, and convert it into actionable information. They can turn your historical Google searches, location information, emails, and calendar entries into targeted ads, and it generates them an incredible amount of revenue. We, the people, willingly disclose all of this personal data to access their various services free-of-charge, and it becomes a win-win situation for everyone involved.
Google’s value was re-emphasized to me just the other day as I returned to Ottawa after a great week of sun and sand on the Florida treasure coast. On my last day in Florida, I woke up to several messages from Google telling me that:
- The weather at my current location is going to be beautiful today. Clear skies and 78 degrees.
- It’s almost time to leave for the airport to catch my flight, which, by the way, is on time.
- I can get directions with a single finger tap if I need them. Do you remember where you last parked? Do you need a rental car?
- There’s a freezing rain warning back home in Ottawa, and another snowstorm expected tomorrow.
Gee, thanks Google. I haven’t even poured a cup of coffee yet, and already you’re reminding me that my vacation’s over and it’s time to head back to the weather that made me leave Ottawa in the first place! While discouraging, it was also a powerful reminder of how compelling information can be when the right analytical tools are used to process it all and turn it into actionable information. Google had taken all the information it had available, planned the day for me, and given me some tools to help execute that plan. It’s really amazing how data can revolutionize planning!
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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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Co-author: Alvaro Fernandez
Happy Father’s Day to all those hardworking dads out there! Ever notice how your dad’s advice always seems to come from a place of experience? He’ll always let you make your own mistakes, unless he’s already made those same mistakes himself. In honor of these dads’ accomplishments in the field of trial and error, I’ve compiled a list of the top 10 lessons your dad can teach you about supply chain.
10. First pants, then shoes – Whether you’re getting dressed for work or increasing your supply chain maturity, it’s important not to get too far ahead of yourself. Make sure your supply chain solutions help you excel at each capability as you progress through the maturity model.
9. Know the risk – Ex. In principle, just-in-time processes are very efficient. You get to hold on to your hard earned money for longer, you don’t have to store extra inventory, and your workspace isn’t cluttered with things you don’t need yet. In practice, these high rewards comes with high risk. Dads have learned this the hard way by applying this approach to things like anniversary gifts, anniversary cards, and sorry-I-missed-our-anniversary flowers. It’s important to understand the risks in your supply chain, and to have the right mitigation strategies in place.
8. Never trust the salesman – As the saying goes, if it looks too good to be true, it probably is. Save yourself the hassle and choose proven and recognized solutions.
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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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