Inventory or Capacity?

November 18th, 2019

Inventory has emerged as a hot topic lately. In today’s Amazon-impacted business environment, customers expect rapid, customized deliveries, the ability to change their mind anytime and easy interactions (placing orders, returns etc.). Since clients are growing, they are also concerned with keeping up with the increasing volume. Thus, they have responded  by stocking more inventory to support increased sales and to respond to these increasing expectations.

However, as clients are taking a step back, they see inventory tying up bunches of cash unnecessarily.  Just because they have more inventory doesn’t mean they have the ‘right’ inventory in the ‘right’ place at the ‘right’ time. Inventory not only ties up cash, but it also increases costs. We are hearing about concerns regarding space, efficiencies, transportation cost impacts and more. In essence, there is a double hit to cash and profit yet the appropriate level of inventory (varies by network and strategy) is required to meet customer expectations.

In addition to pursuing inventory improvement programs to maximize your service, cash and margins such as SIOP (sales, inventory and operations planning) and proactive vendor managed inventory/ collaborative inventory programs, you might want to consider your capacity.

We had a client a few years ago who called because service issues had started to arise and customers were angry. Leadership thought the the operations team was under-performing because there must be something wrong with them since sales revenues were not increasing over 5% a year.

As we dug into the issue, we found that the product mix changed significantly which drove a greater level of operations requirements for the same dollar volume. When this occurred in the past, it didn’t create a problem (lending support to the perception that the operations team was at fault).  Yet, it turns out that as people left, they stopped replacing them because they wanted to bring down costs.

In the past, since they had excess capacity (machinery) and a small excess level of trained, highly skilled direct labor resources, they could produce what was needed as conditions changed without a problem. They no longer could use this magic bullet!

Would it make sense to maintain excess capacity/skills in a key bottleneck area of your operation (whether manufacturing, technical or office)?

If you’d like to talk about your inventory and/or capacity situation further, please contact us.



The Future of Manufacturing Is Bright: Harvey Mudd Takes 1st Place in Global Student Case Competition

November 15th, 2019

As President of APICS Inland Empire, one of my favorite activities is encouraging students. We encourage students from all of our local universities to participate in plant tours, symposiums and student case competitions to learn about manufacturing and supply chain, as well as to expand their professional network. Our Board of Directors has been proud over the years to see multiple teams from Cal State San Bernardino, Cal Poly Pomona and Harvey Mudd win regional competitions to compete in the Association for Supply Chain Management International Student Case Competition. And this year, our student team from Harvey Mudd College took home the gold!

Harvey Mudd placed first, followed by Hong Kong University of Science and Technology and Case Western University. As an audience member during their presentation to the Board of Directors of the case study company, I can assuredly say that my clients would be thrilled to hear this sort of presentation to their Board and it gives us high hopes for the future of manufacturing. There are no limits with students of this caliber! And, as a former co-leader of a highly successful Western region student case competition, I can definitely say a big thank you goes to their academic advisor, Kash Gokli as well as mentors and exemplars that have aided their progress along the way.

Harvey Mudd College facilitates students’ involvement with manufacturing companies as a part of their Clinic program so that students walk away with practical, hands-on knowledge and the company walks away with bottom line results. Another Harvey Mudd team won the Manufacturing Council of the Inland Empire‘s Innovation By Students Award earlier this year for working with manufacturing company, Laguna Clay, to improve processes and drive performance improvement in their manufacturing process. Gone are the days when top notch students think in theory.  Instead, practical manufacturing work experience is the norm and we have many top notch engineers going into manufacturing again!

Additionally, I would be remiss not to recognize that earlier this year another student team from Cal Poly Pomona won the regional competition for the Global Student Challenge and went to the Netherlands to compete in the global competition. There is no doubt that if we provide the tools and education, the future leaders of manufacturing will achieve goals we can’t even imagine at this juncture.

What are you doing to support our future leaders and to encourage the pairing of fresh ideas with solid experience? When paired successfully, it is an unbeatable combination with both the new employee and the tenured employee gaining new ideas and excitement from the process. Take a step back and think about how to make 1 + 1 = 64. And, please refer your friends and colleagues to our APICS Inland Empire chapter as there are numerous opportunities for student involvement and growth.

Did you like this article? Continue reading on this topic:
Manufacturing Summit Recap: Innovation & Top Talent
What’s Ahead for People?



Blockchain, IoT, AI, Big Data. Will Anything Stick?

November 11th, 2019

Client Question
Should I really invest time and resources into technologies I don’t know will pay back?

For example, there is a lot of conversation about the value (or lack thereof) of blockchain, IoT, AI and more. This concern continues to arise and is on every executive’s mind. They do not want to be left in the dust “holding the bag” (old and slow) while their competitors race by. On the other hand, they do not want to dump all sorts of money into technology that might not prove effective in their industry. And, in some cases, what they could invest would be a drop in the bucket. It would be like trying to refill the Pacific Ocean with a pail. Remember that fabulous song by Harry Belafonte “There’s a Hole in the Bucket“?

My colleague Diane Garcia and I set out to find the latest answer to this question at the Association for Supply Chain Management International Conference. There were several panels and presentations on each of these topics, along with several exhibitors talking about the latest and greatest technology integrations.

The Answer
Undoubtedly, there is a lot of noise about these technologies. According to Gartner, AI augmentation will generate $2.9 trillion in business value and recover $6.2 billion hours of work productivity. So, it is easy to see why AI is gaining investment with the large companies and with leaders of large organizations.

I love this quote from Harvard Business Review, “Over the next decade, AI won’t replace managers, but managers who use AI will replace those who don’t.” That about sums it up! We need to at least be aware so that we can make good decisions when it comes to these technologies.

As it relates to AI, according to McKinsey Quarterly, across all functions, respondents report that the most significant benefits come from adopting AI in manufacturing! Coming in second is risk with supply chain management just behind in third place. So, if you are in manufacturing, you cannot afford not to at least consider the opportunities. Do you need to do this on your own? NO! We are seeing small companies come together to share resources and invest jointly to drive scale with results (and so they can compete with the large companies). There are also groups that facilitate this type of collaboration. At the most digitized companies, the adoption of AI capabilities is greater including machine learning, virtual agents, robotic process automation, computer vision and more.

According to Forrester, 90% plan greater investments in data and according to MIT Sloan, 85% view AI as a strategic priority. These two technologies cross over and seem to have the upper hand with the most immediately applicable technology.

With that said, there were even more sessions about blockchain and whether it was hype or hope. The bottom line on blockchain is that it is a real opportunity for certain industries such as the food industry (related to food safety).  It is still in early stages and will require a consortium of companies to come together to bring to reality.

According to a leader from FedEx, whether big or small, no one company will be successful on its own. Yet all the “big guys” are interested and participating. Stay tuned to see where it goes. Last but not least, IoT is integrated into many conversations about big data, AI, autonomous vehicles and more because it connects technologies. In manufacturing, IoT is connecting machines and data for predictive maintenance and the possibilities abound.

The bottom line: pay attention but resist exploring technology in isolation. Learn to collaborate.

Food For Thought
As much as these technologies should be on your radar, don’t get carried away and forget your fundamentals.

Do you have a scalable ERP system to support your business growth and profitability? If not, start there!

Do you have reporting and business intelligence systems so that you can slice and dice information to make instantaneous, informed decisions as key customer questions or business opportunities arise? If not, start there!

How about a simple CRM solution? Certainly in the Amazon Effect era, we must pay attention to customers.

Did you like this article?  Continue reading on this topic:

What is Ahead for Technology?
AI, Robots, IoT, Blockchain, Hike!
Systems Pragmatist



The Often Overlooked Value of Reverse Logistics

November 7th, 2019

While recently at the Association for Supply Chain Management International Conference, I attended a session related to reverse logistics that contained several ideas for how to achieve significant savings and customer value through reverse logistics.

What I thought was even more compelling were examples of innovative ideas that a friend of a colleague discussed that will provide superior customer service AND a significant margin improvement with a common sense idea gained by collaborating with her team. It again proves that results go to those who take the time to listen, observe and collaborate to test new ideas.

One example related to shipping boxes: This aerospace manufacturer received complaints from their customer that they didn’t want hefty shipping boxes as they had to dispose of them. However, there are legal and security requirements that had to be addressed.  So, a creative solution was required.

A team brainstormed ideas and developed a way for the customs officials to look inside the crate without breaking into the crate and created a way to return and reuse the crates also saving the customer disposal costs. Collaboration was a key theme as the supplier, customer and internal team were involved. As this top notch manager commented, there are countless numbers of these types of opportunities out there if we just listen, observe and collaborate.

When is the last time you have visited your shipping operation to ask for common sense ideas that can achieve a dramatic return on investment? Even more importantly, the team feels a part of an important success.

Turning to the e-commerce world, according to a presentation by the Reverse Logistics Association, returns are 25-35% for on-line sales vs. 8-9% in stores. What a dramatic difference! And, of course, handling these returns is inefficient. Traditional labeling is the limiting factor in achieving higher throughputs. Have you thought about your labeling recently? Who knew it could become a differentiator!

When looking at reverse logistics related to food, collaboration was again a key theme. Costa Farms resolved cart and rack issues with both the customer and supplier by moving to consolidated rack return. The idea of collaborating across supply chains is just gaining momentum. For example, as a part of the consortium for logistics success in the Inland Southern California, we are collaborating with Georgia Tech. They are bringing collaboration of strange bedfellows across Southern CA to the table as a way to create a win-win-win for each company involved as well as the environment and more. Stay tuned for the latest trends and ideas emerging from this supply chain consortium over the next few years.

Perhaps the common theme is to pay attention to collaboration opportunities and reverse logistics. There can be a significant hidden opportunity in this topic.

Why not focus attention and see what can be achieved with some common sense and collaboration?

Did you like this article?  Continue reading on this topic:

What is the Supply Chain?
Warehousing Strategies for Success
The Strongest Link in Your Supply Chain


Should I Upgrade Now or Later?

October 10th, 2019

A Client Question
Since we have a simple reorder point system largely in place and we plan to focus on an ERP upgrade in the coming year, should we continue to roll out MRP (material requirements planning) and DRP (distribution requirements planning) or should we just put our efforts into the new ERP system?

In this case, there is still much of the planning process that is done manually. However, a manual process could be good or bad. Employees forced to perform manual processes learn the process in detail yet they might not understand why they are doing what they are doing. Would there be a larger benefit in learning the process in the current system and then re-learning in the new one or vice-versa? After all, resources are limited and the people performing these roles understand key customer requirements in detail. How should we best utilize their time for maximum benefit?

The Answer
In this case, resources are limited. So, the key question becomes how to best leverage the planners to meet customer expectations while getting ready to support the future. Since the simple reorder point works but only to a degree (since they cannot see their bill of materials explosion) in this case, the rest has to be manually calculated. When looking at a configure-to-order situation across multiple sites not connected by DRP, inventory disappears and the complexity of planning materials increases. Also, unfortunately, the only resource that gains an understanding of MRP / DRP concepts is the material planner. The production planners remain unclear as to how these concepts apply. So, it makes sense to roll out the concepts in the current system so that the team gains exposure to how it works. This understanding will prove valuable in implementing the new system, and most importantly, if the material planners do not have to spend countless hours manually calculating numbers, they can provide better service to customers, as well as contribute valuable input in setting up the new system for success.

Food For Thought
Although the MPS/ MRP module of ERP systems can be valuable in improving service and reducing inventory, they do not always make sense. Take a step back to look at the complexities in your planning process. Have you overbuilt the process? We also find that simplifying creates substantial improvement for almost every client. Perhaps you should simplify rather than add complexity, even if you already own the system or your key resources think complexity is needed. At least 80% of the time, we simplify to some degree.  We might take what seems like a step back to simplify in order to take a giant leap forward.

If you are interested in running your situation by us, contact us.

Did you like this article?  Continue reading on this topic:

Which Inventory Planning Method is Best?
Systems Pragmatist