Tag Archive: inventory

Forget About Reducing Inventory; Perhaps You Have the Wrong Supply Chain Strategy

December 16th, 2019

Clients and colleagues have demonstrated a heightened interest in inventory reduction recently despite not yet seeing the full value! Certainly with everyone worried about a potential recession in 2020, they are starting to think about not tying up as much cash in inventory but that is not the 100 pound gorilla. The real question is why we are thinking about corporate mandates and full warehouses instead of seeing the bigger picture – reevaluating our supply chain.

Of course, maximizing your customer service (on-time delivery, quicker lead times), margins/efficiencies and cash flow (inventory reduction) is an important standard best practice. To learn more about how to achieve this win-win-win, read our recent article ” Inventory Management as Fashionable as Automated Intelligence for Distributors” for ACHR News. Yet, it could become “rearranging chairs on the titanic” if your supply chain is not set up to deliver maximum performance. So, instead of jumping to erroneous conclusions, take a step back to reevaluate your end-to-end supply chain strategy.

When I was a VP of Operations & Supply Chain for a mid-market manufacturer, our private equity backers and Board of Directors were always asking about labor costs. It didn’t matter that labor costs was our smallest cost element. In fact, material cost was the 800 pound gorilla at around 70% of product cost, followed by freight. If we could double labor cost to reduce materials and freight, it would be a smart decision. Yet, it was never viewed that way. So, if a smart private equity group and executive team can bark up the wrong tree, we all might be speeding down the freeway but going in the wrong direction.

Typically, labor cost is 8-12% of the total cost of ownership. How does that compare to your materials cost? Unless you are in a labor-intensive industry, perhaps you better take a second look. Next there are freight costs. Not only do freight costs continue to rise but the rules, regulations and delays can be astounding. In a recent California Inland Empire District Export Council (CIEDEC) meeting, the new sulfur emission rules for shipping arose because costs will have to be passed on to importers and exporters. Of course, we don’t have to mention tariffs and global unrest. Now, let’s add inventory carrying cost into the equation. It is a minimum of 6%.  Yet, most experts (and clients) agree that it is truly a minimum of 25% and could be as bad as a 1:1 ratio. Just think about how often your customer changes his mind, all the expediting you have to do to serve customers and the systems and complexity your team has to manage. Is it time to reevaluate?

ERP system
Let’s not forget that this equation isn’t just an insource or outsource question. There are lots of opportunities. For example, you might want to think about the following questions:

  1. Where are your customers?
  2. Where are your suppliers?
  3. Is there disruptive technology that could impact your cost ratios?
  4. How complex is your supply chain? Have you thought about the price of complexity?
  5. Do you have a robust ERP system to support customer expectations while achieving profitable growth?
  6. Are there supply chain partner programs that could completely change the game?

No matter your situation, it is worth revisiting. Corporate strategies last NO MORE than a year so why are we leaving our supply chain to old rules? Instead, we should be future-proofing our manufacturing and supply chain business.

Stay tuned and read more about it If you are interested in discussing a supply chain assessment, please contact us.

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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.



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.

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Manufacturing Expert, Lisa Anderson, Sees Impacts of Artificial Intelligence on Manufacturing Profit, Inventory Levels and Cash

September 20th, 2019

Manufacturing Expert, Lisa Anderson, Sees Impacts of
Artificial Intelligence on Manufacturing Profit, Inventory Levels and Cash

CLAREMONT, CALIFORNIA – September 19, 2019 –  Manufacturing and Supply Chain Expert,  Lisa Anderson, MBA, CSCP, CLTD, president of LMA Consulting Group Inc., predicts that artificial intelligence (AI) and human learning will impact most aspects of manufacturing resulting in improved profits, inventory levels and cash.

“Our manufacturing clients have really embraced the power of AI since the first of the year.  From improved forecast accuracy impacting inventory levels to more openly working with changing customer needs and the overall customer experience, manufacturers are seeing the effects of using this data,” Ms. Anderson commented. LMA Consulting Group works with manufacturers and distributors on strategy and end-to-end supply chain transformation to maximize the customer experience and enable profitable, scalable, dramatic business growth.

“Despite the fact that manufacturing, especially in Inland Southern California continues to be strong, manufacturers need to be smart. By integrating AI with tried and true techniques such as SIOP (Sales, Inventory and Operations Planning) and taking advantage of predictive analytics and other human learning technologies in conjunction with ERP systems, manufacturers can become better at forecasting and exceeding customer expectations.  In fact, for every one percent improvement in forecast accuracy, there can be a seven percent improvement in inventory levels and therefore cashflow,” she said.

In an effort to support clients, Ms. Anderson is active with the Board of Directors of the Inland Empire Economic Partnership, where she represents the Logistics Council whose initiative is developing a consortium for logistics, supply chain and advanced manufacturing success. “AI and other forms of technology are transforming manufacturing as we know it. From reevaluating sourcing and enabling robots to predictive maintenance and shortened design times, AI offers up vast potential. Successful manufacturers are strengthening their hold. Supply chain and other manufacturing professionals are sharpening their skills to take advantage of these resources. It takes work, smart management and a strong team to be successful. A perfect storm for manufacturing success. The evidence is in the growth we see in Inland Southern California (also known as the Inland Empire),” she concluded.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation.  She focuses on maximizing the customer experience and enabling profitable, scalable, dramatic business growth. Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by arketi group, 50 ERP Influencer by Washington-Frank, a top 46 most influential in Supply Chain by SAP and named a top woman influencer by Solutions Review. She recently published, I’ve Been Thinking, 101 strategies for creating bold customer promises and profits. A regular content contributor on topics including a superior customer experience with SIOP, advancing innovation and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, tED magazine and the Wall Street Journal.  For information, to sign up for her Profit Through PeopleTM Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.
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Media Contact
Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com   
                                                        



Is there an ROI on a Forecasting System?

September 12th, 2019

A Client Question
Since forecasting can deliver significant benefits with increased levels of service, inventory turnover and margin improvement, the question that inevitably arises is whether it makes sense to purchase a forecasting or demand planning system. Of course, the answer is: “It depends”.

In one client situation, goods were manufactured in Mexico and purchased from Asia. Key customers were large retail outlets. Demand seemed to change daily.  Yet, lead times were in the months if the ‘right’ stock wasn’t in the ‘right’ place at the ‘right’ time. Of course, they could cover some small changes by adding freight costs but that isn’t a recipe for profit. Improving the forecast would improve their success. So, the question turned to whether a system would have a ROI.

The Answer
In their case, they could achieve a rapid return on investment by using a forecasting system. However, let me say upfront that more often than not, I do not recommend a system. It completely depends on whether it will drive the appropriate level of improvement and associated results or not. In this case, we could easily drive dramatic forecast accuracy improvement since we started out at such a low level of accuracy due to the business environment, industry and key customers. The people understood the importance of the providing forecast feedback and although the key customers didn’t have “good” forecasts to provide, they could provide data we could analyze. In these types of situations, we are able to reduce inventory by a minimum of 20%.  It should be noted, though, that results can be far greater.

Food For Thought
Although forecasting systems can be a great idea to drive service, inventory and margin improvement, they do not always provide a return. Take a step back to understand your industry from a forecasting point-of-view:

  • Is demand constantly changing?
  • Are you supporting small numbers of customer/location points with less than 25 items or is it 100 fold?
  • Are you able to gain key customer input and/or point-of-sale data?
  • Do you have anyone familiar with demand planning and forecasting to be able to make sense of what a system is telling you?
  • And, last but definitely not least, have you found the appropriate scale for your forecasting system?

Trying to kill a fly with an assault rifle is overkill. If you are interested in running your situation by us, contact us.

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