If you’re seeking continuous improvement for your supply chain, your inventory management is a key area. We already looked at some basic steps for optimizing your inventory management. This week we’re focusing on business processes and the role they can play in this.
Though high inventory and large inventory buffers can be somewhat justified, they lead to various disadvantages. They hide problems. Longer lead times, obsolescence, damaged goods, transportation, storage costs and delay, production imbalances, late deliveries, defects, equipment downtime, and long setup times- to name but a few. Tackling the processes we'll talk about today will enable you to reduce a large chunk of your inventories.
The first thing to note? No improvement is possible without documented processes. Too many companies lose out on chances to reach their targets because they do not follow this Lean Management principle.
Instead, they may rely on the learned experience of their employees, who work well and seemingly efficient with few checks or specific standards. Should they leave, retire, or unexpectedly be taken ill, the company is left with no recorded knowledge and or standards that can be carried over. If you don’t ensure documentation, standard-setting, and accountability is present in your supply chain, you’re running these risks.
However, with proper documentation and concrete standards within your processes, you build up the groundwork for a rigorous investigation into your areas of improvement.
Start by creating a process description with a logical and chronological process sequence, corresponding timings, calculable costs, and interfaces. It has to be clear, with identifiable elements, i.e. numbering and naming according to a superior logic. Depending on the scope of the process, it is recommended to distinguish between overview representations and sectional representations in detail, using perhaps the value stream method or the flowchart approach. To optimize your processes, analyze the existing, and redesign the new process and standards side-by-side. Once they’re agreed upon, make sure there is something in place to check it’s being followed.
So, what are the processes that require this?
Sales & Operations Planning
Sales & Operations Planning (S&OP) is essentially the process of setting out the production plan that will best fit the forecasted sales while also meeting other business objectives such as profitability or customer lead times- a definition paraphrased from APICS. Adding dynamic calculations of inventory needs to your S&OP can be done with transactional data and sophisticated BI tools, further enriching the multiple perspectives of the process. Because of the huge overview of the S&OP process, conflicts of objectives can be defused faster and all departments can be equally informed about changes and measures. In short, improvement in this process means meeting the needs for clear, concise, and quick coordination that is so necessary for inventory management.
For whatever reasons, slow-moving stock, i.e. stock that is sold either seldomly or never, can be present in all inventories. The slow-mover process is there to reduce these stocks, and while it isn’t rocket science, it’s often practiced ineffectively. Or more accurately, despite being a set standard, it's not being practiced.
But what exactly are the effects on inventory management? A regular inventory-monitoring process cycle ensures that slow-moving items are systematically observed and reduced. Keeping an eye on things lead to quicker initiations of corrective action, meaning that fewer products become slow- or non-movers. By implementing targeted measures, this process will release unnecessarily tied-up capital as quickly as possible.
Christoph Kilger has already spoken about the problems of product portfolio complexity in a previous blog. The phase-in/phase-out process is the process that directly works towards addressing these, leaving you with a healthy, decomplexified product portfolio.
As your portfolio grows, its associated complexity increases. Naturally, a certain level of products must be managed to achieve the company's goals; the phase-in/phase-out process defines the criteria for adding and removing products to do this. With an optimized portfolio, the entire supply chain is less complicated, therein reducing inventory planning and handling effort as well as the inventory levels.
It may be obvious to say, but inventory management is a complex topic. It requires cross-departmental collaboration, and sustainable improvement can only be achieved through transparency and strict adherence to processes. In effect, the end goal of all these measures is an optimal inventory level and meeting your business needs through a better approach to inventory management.
At aioneers, we work on the minute details of what we’ve spoken about today. We have a wide range of supply chain consulting services that help you to identify and strengthen any process weaknesses holding you from closing the supply chain performance gap. We’re available to assist in optimizing inventory processes, supported by AIO products for analysis, optimization, and implementation. Contact us to get a feel for how we work and what we could do for you!