SCMR Inventorymanagement Masterslidedeckpdf

Moderator: Frank Quinn
Editorial Director
Presenter: Ralph Cox
Director
Welcome & Introduction
Welcome & Introduction
Copyright 2011 Tompkins Associates. All rights reserved. www.Tompkinsinc.com
10 Proven Ways to Cut Your Inventory Costs
Businesses
o Manufacturers
o Wholesale Distributors
o Retailers
o eCommerce / Consumer Direct
Demand Patterns
o Routine
o Trend
o Seasonality
o Level Shift
o One-time Event / Promotion
o New SKUs
Supply Chains
o Domestic
o Global
Inventories
o In Transit
o Raw Materials
o WIP
o Finished Goods
o MRO
Inventory Policies
o SKU Stocking
o Safety Stock
o Cycle Stock
Business Processes
o Forecasting
o Demand Planning
o Capacity Management
o Inventory Management
o Production Scheduling
o SKU Discontinuation
o Reverse Logistics
Organizational /
Geographical
Logistical
Product
Hierarchical
Company
DC
Category
Region
Bill-to-Customer
Class
Forecast Level
High
Low
Forecast
Error
(MAPE)
State
Ship-to-Customer
SKU
Forecasting
Realms
Organizational /
Geographical
L
o
g
i
s
t
i
c
a
l
P
r
o
d
u
c
t

H
i
e
r
a
r
c
h
i
c
a
l
1. Improve Forecast Accuracy
Editing data in the sales history
which would mislead forecasting
software algorithms
past out-of-stock situations
past promotions
Establishing a database of past
promotion lifts for forecasting future
promotions
Incorporating non-routine demand
and structural changes into the
future forecast
the number of stocking locations
(level shifts)
future promotions
Keys:
Why: Improving SKU-location-level forecast
accuracy minimizes overstock,
reduces out-of-stock situations,
reduces unnecessary transportation
costs and increases revenue
How:
Edit sales history
Forecast promotions explicitly
Use statistical forecast tools
Get input from multiple stakeholders
Collaborate with customers
2. Base Safety Stock on Customer Service Levels
Current Customer Service Levels
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
1 706 1411 2116 2821 3526 4231 4936 5641 6346 7051
Ranked SKUs
C
u
s
t
o
m
e
r

S
e
r
v
i
c
e

L
e
v
e
l

/

M
a
x
i
m
u
m

F
i
l
l

R
a
t
e
Basing customer service levels
on desired unit fill rates.
Calculating the safety stock
levels dynamically based on:
demand variability / forecast
error
lead time and lead time
variability
cycle stock policies
Adjusting desired customer
service levels based on the
actual order fill rates achieved
Keys:
How:
Calculate safety stock for each
stock SKU-location based on the
desired customer service level, by
SKU class, either:
as a minimum during the
replenishment lead time
as a long-term average
Why:
Basing safety stock on desired
customer service levels provides
the most effective use of working
capital relative to the fill rates and
SKU in-stock percentages achieved
3. Transfer; Avoid Acquiring More
Why:
In the reverse direction, between
network tiers, transfers reposition
inventory from lower to higher
demand locations to work it off
In the lateral direction, within the
same network tier, transfers
minimize purchases
How:
Understand the warehousing and
transportation costs involved
Identify potential transfers automatically
Review transfers and release manually
Limit transfers to:
SKUs with very accurate forecasts
SKUs with significant overstock
Transfers for which the cost is
significantly less than the upcoming
annual holding cost
Keys:
Lateral transfers work most effectively
with medium-volume product which is
inexpensive to handle and ship
Reverse logistics transfers, say from
branch or store to DC, work most
effectively with more expensive
product which can be backhauled for
free
4. Vendor-managed Inventory (VMI) and
Vendor Stocking Program (VSP)
Beginning with extensive due
diligence:
suppliers demand planning
systems and internal performance
management program
results achieved for others
Measuring performance and
proceeding slowly based on results
Operating with written agreements,
defining responsibilities and goals
Keys:
How:
Negotiate an agreement with
suppliers for selected SKUS:
Difficult to forecast
Expensive
If trusted, as well as properly and
adequately incentivized:
true VMI suppliers have increased
visibility and thus the potential to
reduce both inventory as well as
unit costs and, sometimes,
operating costs
VSP suppliers, most often used for
MRO, dont have increased
visibility but can reduce inventory,
especially when other customers
are in close proximity
Why:
5. Think Postponement
How:
Understand the concept
Identify SKUs with high potential
Make appropriate changes in routings,
procedures, etc.
Establish semi-finished level inventory
policies
Keys:
Identifying commonality in bills of material
mirroring the production sequence
Some examples
Common formulations with the
exception of color or fragrance
Products sold in many package styles
or capacities
Product-packages sold under
different labels (the most common
example: bright(unlabeled) cans -
packaged to inventory and labeled
only after receipt of customer orders
Why: Postponement facilitates holding
smaller inventories and
simultaneously reduces
customer lead time
6. Rationalize SKUs and SKU Stocking Locations
Why:
SKUs tend to be added faster
than they are discontinued,
unnecessarily increasing
inventory and reducing turnover
Multiple SKU-locations
exacerbate inventory, reducing
customer transit time, but often
only marginally and possibly
unnecessarily
Keys:
Investigating the
GMROI ratio (annual gross margin /
average inventory value) and
SKU revenue / number of stock SKU-
locations
across the full range of SKUs helps
identify opportunities for improvement.
For multi-tier networks, use a hierarchical
strategy
Make SKU stocking decisions based on:
For single locations, comparative lead
time and order quantity logic
For networks, minimum cost
How:
7. Reduce Lead Times
LOWER SHORT-TERM
DEMAND RATES
THAN ANTICIPATED
O
N
-
H
A
N
D
I
N
V
E
N
T
O
R
Y
RE-
ORDER
POINT
SAFETY
STOCK
FORECAST
HIGHER SHORT-TERM
DEMAND RATES
THAN ANTICIPATED
"OUT OF STOCK"
CONDITION
ACQUISITION LEAD TIME
ZERO
NO DEMAND
INFINITE DEMAND
How:
Understand lead time components
Measure supplier lead time and variability
vs. the average supplier as part of a
mutually-beneficial Supplier Relationship
Management (SRM) program with the
current replenishment structure
Change to a different replenishment logistics
structure
Identify options to reduce lead time
component times
Keys:
Stratify suppliers based on
past performance and need
for the business
Measure lead time (and
inbound fill rate) against first
receipt date
Its not all about suppliers
Pre-purchase manufacturing
capacity
Longer lead times
increase safety stock
increase cycle stock
increase forecast error
Why:
8. Minimize MOQs (Minimum Order Quantities)
How:
Calculate the excess inventory
value due to MOQs, by vendor
Train purchasing personnel in
the impact of MOQs on
inventory and its turnover
Train purchasing personnel in
win-win negotiating techniques
Why: MOQs, regardless of how defined ($, units,
pallets, etc.) at the vendor- (least harmful),
SKU- (less desirable) or SKU-location-
(worst) level require inventory to be
acquired prior to when it would have
otherwise been acquired
Concentrating on the
larger opportunities, first:
Long-term vendors
Many SKUs (facilitates
negotiating better
agreements)
Inventory impact of
MOQS >15%
Keys:
Maximum
Past Sales Rate
Average
Economics-based
Re-order
Point
Forecast Sales
Safety Stock
Business / Marketing
Philosophy - based
Time Acquisition Lead Time
On-hand
Inventory
Balance
Cycle Stock
Safety Stock
Maximum
Past Sales Rate
Average
Economics-based
Re-order
Point
Forecast Sales
Safety Stock
Business / Marketing
Philosophy - based
Time Acquisition Lead Time
On-hand
Inventory
Balance
Cycle Stock
Safety Stock
9. Extend Payment Terms
Owned Inventory as a Percent of Total Inventory
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 1.5 2 2.5 3 4 6 8 10 12
Annual Inventory Turnover
P
e
r
c
e
n
t

o
f

I
n
v
e
n
t
o
r
y

O
w
n
e
d
15 Day Payment Terms
How
:
Calculate the relative ownership
percent of various inventory categories
[(balance less AP portion) / average
balance] to identify highest priority
concerns
Train purchasing personnel in the
ownership relationships between
turnover, payment turns and discounts
Train purchasing personnel in win-win
negotiating techniques
Keys:
Concentrating on the larger
opportunities, first:
Long-term vendors
Low aggregate inventory turnover
for vendors SKUs
Long payment terms
Ownership >75%
Paying on time
Why: The economic impact of high inventory
levels is only the portion of inventory
actually owned, i.e., the total on hand,
and possibly in-transit depending on
the freight terms, less the portion
currently in accounts payable (AP)
10. Sales and Operations Planning (S&OP)
How:
Learn how the best work
Develop the process:
Participants
Facilitator
Purpose
Required pre-work
Agenda
Best aggregation level
Implement, refine, train, repeat
Measure meeting time and its
reduction
Keys:
Management support
Participation by all stakeholders
Existing SKU demand (Sales)
New SKU demand (Product
Development and/or Marketing)
Supply (Manufacturing and/or
Purchasing)
Planning
Finance
Why:
S&OP programs provide a
structured decision-making
process for coordinating supply
and demand and for addressing
inevitable conflicts between
priorities
S&OP
Decisions
F
i
n
i
t
e

C
a
p
a
c
i
t
y
R
e
a
l

L
e
a
d

T
i
m
e
s
C
o
s
t

C
o
n
t
r
o
l
DEMAND
O
p
e
n

C
u
s
t
o
m
e
r

O
r
d
e
r
s
N
e
w

C
u
s
t
o
m
e
r

O
r
d
e
r
s
F
o
r
e
c
a
s
t

D
e
m
a
n
d
C
u
r
r
e
n
t

R
e
q
u
i
r
e
m
e
n
t
s
W
I
P
F
u
t
u
r
e

N
e
e
d
s
C
a
s
h

W
o
r
k
i
n
g

C
a
p
i
t
a
l

P
r
o
f
i
t
a
b
i
l
i
t
y
PLANNING
SUPPLY
FINANCE
Moderator: Frank Quinn
Editorial Director
Presenter: Ralph Cox
Director
Questions & Answers
Questions & Answers

SCMR Inventorymanagement Masterslidedeckpdf

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SCMR Inventorymanagement Masterslidedeckpdf

Uploaded by

Copyright:

Available Formats

Moderator: Frank Quinn

You might also like