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