Home' MHD Supply Chain Solutions : MHD Spt-Oct 2014 Contents 44
oo much inventory or not enough. It’s the
eternal struggle at the heart of effective
supply chain management, but it’s an
equation organisations continually get wrong.
If organisations are to get it right, they need to
completely shake up the way their inventory is
It’s a typical situation: a business holds
too much inventory, so attempts to reduce it.
Production stops until inventory is cut to an accept-
able level, only to find, a month or so later, custom-
ers can’t get the products they want. So production
restarts and runs flat out for the next few months.
The result? The organisation ends up with more
inventory than it started with. But it doesn’t have to
be like this. Just follow these simple tips:
1. Understand your inventory
Trying to remove inventory without tackling the
root cause is like tackling the symptoms of an
illness before the diagnosis. First you must
understand why it’s there in the first place.
The inventory an organisation holds today
is typically a consequence of the decisions
it made months, years, even decades ago –
many of which are forgotten with the passage
of time. When they make these decisions,
all too often companies fail to recognise the
long-term impact they have on inventory. So
understanding what you have and why you have
it is the first step.
2. Look to the future
To avoid making the same mistakes as your
predecessors, you need to look beyond the
immediate execution window and consider
all supply variables before making decisions.
An integrated management process, such as
integrated business planning (IBP) can help to
achieve this. With a rolling 24-month horizon,
this allows greater understanding of the impact
overriding business goals have on inventory
levels as well as enabling you to model how
much inventory you need to run your business.
3. Remember the great unwatched
All too often, organisations rush straight in to
removing visible inventory (cycle stock, safety
stock, pre-stocking and hedging stock), when
it’s on the rest - the great unwatched - which
can be as much as 25 percent, where efforts
need to be concentrated.
4. Consider your service offering
In an ideal world, every organisation would have
100 per cent service levels; the reality is, many
can ill afford this and have to settle for 95 per cent
at best. A small drop in service levels can have
a significant positive effect on inventory levels,
although of course for some this is not an option.
Performance benchmarking can determine what
an acceptable service level for the market is.
5. Change your cycle time
Long campaigns can aid operating efficiency,
but result in cycle stock. Consider making half
as much, twice as often: this can result in a
company not only becoming more responsive
to the market, but also significantly reduce
6. Invest in safety capacity
Most organisations see inventory as their only
option to buffer poor supply performance and
provide the flexibility to satisfy un-forecast
demand. But investing in safety capacity can
be a cheaper option, reducing planned capacity
slightly and having the ability to ramp it up when
demand requires can provide a good alternative.
7. Vary your safety stock
Many businesses carry a generic weeks’
coverage model of safety stock for every product
in their portfolio, but it’s important to consider
the significance of each individual product.
Some popular products may require a lower
level of safety stock, whereas others with higher
variability require more.
8. Effect cultural change
It’s vital that demand and supply take joint
ownership of inventory. For this, you must
eliminate blame culture. Plenty of people are
involved in inventory management – from those
who effect financial change, to those in planning
frequency and safety stock. These people are
the organisation’s most powerful weapon when
it comes to inventory management, so clearly
define their roles and equip them with the
knowledge to apply best practice.
Mike Reed is managing partner at business
improvement consultancy, Oliver Wight Asia
Pacific. For more information visit www.
Contact: 1300 555 101
Kardex VCA Pty Ltd, Wodonga VIC 3690
• Small Unit Footprint
• High Speed Operation
• Dedicated Inventory Control
• Minimise Manual Handling with ‘Goods
to User ’
• Storage 500kg per Tray
• Clean Stock, Reduced Shrinkage
• Great ROI, Local Service and Support
• Small Item Distribution
• 3rd Party Logistics and Inhouse Facilities
• Work In Progress and Buffer Storage
• Maintenance Spares
• Tool Storage
EIGHT WAYS TO SHAKE UP
MHD SUPPLY CHAIN SOLUTIONS — SEPTEMBER / OCTOBER 2014
MHD Sep-Oct 2014 34-55.indd 44
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