Article 4 : strategic inventory management through analytics

Article Review. Brief explanation on summary, issues, results, critique, analysis and conclusion

Strategic inventory management through analytics An effective inventory strategy is a critical prerequisite for success in ever? business, regardless of size and marke sector. Such a strategy focuses on aligning customer requirements, mark dynamics and enterprise resources. The key is to balance the investmen in inventory with the requirements of each part and customer. Too often, companies make large inventory inves ments without adequate precision, so the results are suboptimal. Inventory tends to be the largest component of working capital for most manufacturel so it requires sustainable managemen: practices. An effective inventory strategy consists of solid analytics, robust process and a culture of accountability Inventory management is not a random set of inventory control techniques. It is part of a well-thought out holistic strategy to bring together : aspects of a supply chain. Companies that operate in a highly coordinated manner with visibility across the supp chain excel in inventory and delivery performance. The holistic strategy focuses on all stages of inventory, including finished goods, works in process and raw materials. Best in class companies outperform others by understanding and collaborating on an inventory plan both internally and extemally with their key trading partners. Effective planning processes and tools are imperative to manage inventory successfully. However, planning alone cannot and will not deliver results for inventory performance. A dosed loop execution management operating system is also required. Taming a beast with many head The first step is developing an invento strategy, which must be based on the voice of the customer, economic condi tions, market intelligence and supply chain complexity. Most companies face a similar challenge. They think inventory levels are high based on internal measures, (a reorde mehod where the roorder SAFETY STOCK EXPENSES those are aspects of control points; Figure 1. Using analytics to drive your inventory management strategy can help alleviate the dual problems however, superior performance requires of holding too much stock while delivering poor service. a management operating system that is broader, one that improves the culture of the entire organization. Establish a management operating system Upon setting the strategy for inventory, organizations must implement processes and tools for governing the progress and ensuring rapid root cause analysis. Creating transparency to current state and desired furure state is the first step, followed by an ongoing drumbeat for rigorous review of status and root cause analysis for areas where targets are not being met by the organization. A governance process can be housed within a larger sales and operations Figure 2. This inventory calculator output from NorthFind Partners helped a North American consumer products company reach record service levels, even while reducing inventory. Classify parts Review historical performance Set service levels Projected inventory and service level plan accurion and control poinss. Per he SELECTED INVENTORY METRICS operating system above, a periodic Figure 3. Metrics should link inventory plans to execution and control points and be reviewed periodically to review of inventory and operations assure progress. performance metrics coupled with root cause analysis and corrective action will assure progress. These metrics are to be used to drive cross-functional account- ability, which makes regular root cause analyses a critical aspect of the overall process. Performance metrics have several roles and functions. - They provide a quantified definition of what areas are of key impor- tance and how the organization is performing in these areas. - They ensure alignment between strategic, tactical and operational goals. - They facilitate a cross-functional view of the relative importance of goals and expansion, and material, manufacturing satisfaction, working capital and profit. objectives.Theyformakeypartofthebasisforcontinuousimprovementwithintheorganization.Theyprovideasystematicmethodtolinkindividualandorganizationperformancetovariousrewardprocessorsupplierqualityfailures.Usingtoolssuchasthefishbonediagram,fivewhys,Paretoanalysisandotherstandardqualitytoolstodeterminetherootcauseofyourproblemwillassureafocusonthecorrectdriversoffailure.Astargetsaresetforbusinesslevelmetricsimpactedbyinventory,itisimportanttoassurecompany,divisionandindividualgoalsforinventoryarealignedandsynchronized.Asinventorygoalsareimplemented, performancetovariousrewardsystemsthatarebasedonkeyperfor-correctdriversoffailure. mance indicators (KPIs). Holistic process, proven results importance. Make sure your enterprise and expedite costs is critical for under- the above described operating system deployment process in a manner that standingoverallcostperformance.Asdiscussedearlier,performancemanagementrequiresnotonlydoseobservationofmetricsbutalsothedeliverspowerfulresults.Anumberofcompaniesthathaveimplementedthesesolutionshaveseencustomerservicelevelincreasesrangingfromispercentassurestherelatedmovingvariablesareconsidered.Ultimately,theprocessneedstobeholisticanddriveculturalchange. application of standard root cause to 25 percent, reaching a total of 93 corrective action measures when there percent in most cases. Corresponding are deviations from the normal perfor- decreases in inventory range from 16 mance. Performance misses tend to percent to 24 percent. correlate with demand error, supply Inventory strategy and planning can chain master dara deficiencies, supplier have a direct impact on many drivers of delivery misses, unforeseen lead-time business success, induding customer