| The inventory in your warehouse or factory is both | | | | stocks could be held at any one of a number of |
| an asset and a liability. In either case, if it just sits | | | | locations, including the mill, external warehouses |
| there, it is worse than worthless - it's of negative | | | | owned by the mill or the merchant, the merchant's |
| value. Whether it's pens in the stationary cupboard or | | | | central or regional warehouses and even at the |
| multi-million dollar machine tools in the dockside | | | | printer. This stock holding and the subsequent |
| warehouse, inventory must be stored and cleared in | | | | distribution requirement incurs costs for every |
| as cost-effective and efficient a way as possible. | | | | member of the supply chain and should be reduced |
| Inventory optimisation is about managing what is in | | | | wherever possible, particularly where there is |
| the warehouse and how those contents flow into | | | | unnecessary duplication. Quite simply, whichever party |
| and out of the warehouse. It is the area where most | | | | can distribute stock in the most cost-effective |
| ERP software implementations normally get the | | | | manner to the required service level should be |
| highest and fastest return on investment. It is | | | | encouraged to do so. Implementing best practice at |
| therefore surprising that many companies that have | | | | this stage requires mills, merchants and printers |
| implemented ERP have not yet added a dedicated | | | | working together to establish the optimum |
| inventory optimisation module, as it offers a huge | | | | distribution. This will eliminate the costs of empty |
| potential for companies to maximise the value of | | | | warehouses and unnecessary journeys. |
| their IT investment for a relatively small incremental | | | | The pharmaceuticals and healthcare industry is |
| cost. | | | | another area for inventory optimisation. Distributors |
| It is a fundamental requirement for almost every | | | | need to move and manage large volumes of items |
| company to be able to meet customers' requested | | | | with speed and accuracy. This means that the |
| service levels with a minimum amount of inventory. | | | | reception, storage and picking of thousands of sales |
| This means having just the right products in stock in | | | | order lines has to be streamlined. Radio frequency |
| the right amounts and virtually nothing else. Excess | | | | identification and barcode support can give real-time |
| stock is excess capital outlay, which has a massive | | | | inventory control and minimise paperwork. |
| impact on bottom line profitability. However, this has | | | | Pharmaceuticals warehousing must also meet strict |
| to be balanced against the potential damage of | | | | regulations for narcotics and hazardous goods. In |
| inadequate stock leading to lost sales, lost customers | | | | other words, the pharmaceuticals industry needs a |
| and a negative impact on bottom line profitability. | | | | system that supports large volumes of items. Most |
| If you could precisely predict exactly what your | | | | of the purchasing and planning activities need to be |
| customers will buy in the future, inventory | | | | automated as much as possible to react and deliver |
| optimisation would be very simple. But, in reality, it is | | | | on constantly changing demand. |
| rather tricky. Deciding on the correct inventory level | | | | Finally, when talking about stock keeping units, |
| is a major issue, and the answers will vary from | | | | electrical component distributors are among the |
| industry to industry, and from organisation to | | | | hardest hit. Some of them have more than 100,000 |
| organisation. | | | | stock keeping units. It is essential that the |
| The danger lies in either overstocking or | | | | information in the item file is correct and easy to |
| understocking. | | | | maintain. They need to collaborate with suppliers, |
| Overstocking results in a range of negative impacts: | | | | which means that they need a system that can |
| Organisations become inflexible, and difficult to | | | | easily import new prices. They also have to be able |
| manage | | | | to handle extensive and complex agreements in |
| There is an increased amount of funds tied-up in | | | | order to purchase items at the right cost and at the |
| non-productive goods | | | | right time. They need a solution that supports |
| Consequently, there is an increased number and | | | | cross-referencing so that they can define alternative |
| value of write-offs | | | | and replacement products; inventory segmentation |
| More goods become obsolete or expired | | | | so that product lines can be defined as high-turnover, |
| Storage needs increase exponentially as less | | | | low-margin, high-value, slow-moving, etc; and dynamic |
| stock is removed than is brought in | | | | demand forecasting, replenishment suggestions, |
| Overheads increase due to all of the above. | | | | cross-docking, over-the-counter sales, and seasonal |
| On the other side of the coin, understocking also has | | | | fluctuations. Warehousing requires real-time control to |
| negative impacts: | | | | assure timely deliveries, without overstocking. |
| Service levels are low because of inability to | | | | The fact is, more and more industries and verticals |
| meet demand | | | | are facing the same problem as the electronics |
| Customers are disappointed, to say the least | | | | industry, as companies continue to collaborate and |
| Organisations are subject to rush charges and | | | | consolidate. This means that the supply chain runs at |
| express delivery fees to ensure the availability of | | | | ever-faster rates and with greater volumes. |
| inputs | | | | Information requirements and ways to connect |
| Business opportunities are lost. | | | | systems and use information become more critical |
| To make the picture even more complicated, getting | | | | for processes, while reporting, analysis and planning |
| accurate forecast figures becomes equally | | | | are becoming increasingly important for everyone. |
| problematic as the supply chain becomes more | | | | At the same time as there are complexities in the |
| complex. | | | | supply chain, there are also internal challenges - even |
| In the days following the Second World War, | | | | differing priorities - within the organisation. CEOs want |
| demand was larger than production. Companies were | | | | to improve customer service, sales want more |
| focused on making purchasing and manufacturing | | | | products to sell, and CFOs want to reduce inventory. |
| more efficient, as you could always sell what you | | | | The best and truly the only way to adequately |
| produced or purchased. Today it's the other way | | | | handle this conflict of interest and complexities of |
| around. Production is greater than demand and | | | | systems is the old slogan: Order the right product, at |
| customers have become more and more demanding. | | | | the right quantity and quality at the right time. The |
| That's why an agile supply chain is vital, one that can | | | | objective of any solid inventory management system |
| react when customers suddenly demand a new | | | | is to provide the best possible customer service |
| version of an item, and that can deliver with shorter | | | | within the restraint of the lowest practical inventory |
| lead-times. | | | | costs. |
| Inventory challenges facing organisations therefore | | | | Optimising inventory is a constant balancing act. Once |
| include: | | | | you've made your initial decision to undertake an |
| Complex global supply chains, with potential | | | | optimisation program, there are four different steps |
| outsourcing of manufacturing to low cost countries | | | | you will need to follow: |
| which increases freight costs | | | | Analyse the current situation, what items are |
| Supply chain integration/visibility is limited, | | | | selling and how is delivery performance, etc |
| especially if dealing with low cost countries that do | | | | Classify items into different categories that can |
| not have advanced IT systems | | | | be handled with ease and define strategy per |
| Customers driving demand which can be broad | | | | product segment |
| and unclear | | | | Calculate as good a forecast as possible, |
| Complex products, with broad and detailed | | | | adopting different policies on different segments |
| configuring | | | | Control costs by optimising replenishment, |
| Subsequent stock-keeping requirements, | | | | adopting different replenishment policies on different |
| potentially for a wide range of components required | | | | item segments; and replenish with the best possible |
| for configuration | | | | collaboration with suppliers. |
| Shorter product life cycles | | | | Then ... you do it again. Inventory optimisation is a |
| Uncertain future market directions and trends. | | | | constant process of fine-tuning inventory and |
| To make it even more complex, different industries | | | | analysing performance: are there other item |
| have different challenges that need to be addressed, | | | | segments that can be improved, how effectively can |
| which is why agile solutions that meet | | | | they be improved and at what cost? |
| business-specific needs are required. | | | | It's simple, when you know how. |
| For instance, one example of a vertical industry | | | | It is just important that you follow a formal structure |
| dealing with inventory issues is paper merchants and | | | | that gives you accurate and timely information, and |
| distributors. Here, customers handle very large and | | | | that allows you to make tactical and strategic |
| heavy goods, and because of weight and volume it is | | | | decisions about your inventory flow. The next step in |
| essential to have direct delivery from the supplier to | | | | this process is to determine how you stand at the |
| the customer. Delivery needs to be just-in-time, as a | | | | moment - analysing your performance. |
| printing business cannot store a lot of paper. Paper | | | | |