Tag Archive: inventory

JIT Might Not Be What it is Cracked Up to Be?!

April 2nd, 2020

Just-in-time might not be what it is cracked up to be! Certainly, the coronavirus impacts should give us reason to question this rule at face value. Are you running so tight that you only have one bin, pallet or small supermarket to keep your facility running? If so, the question extends to your end-to-end supply chain.

Let’s assume you are a critical manufacturer struggling to produce key items during this coronavirus pandemic. Your suppliers should not be on lockdown since they support a critical infrastructure business; however, that doesn’t mean you’ll be fine. There are many considerations to review:

  1. Source of supply: Are your suppliers located in Asia and unable to staff during the peak of the coronavirus? Do you know what type of delays you’ll experience? Do your suppliers have contingency plans?
  2. Your suppliers’ suppliers: Even if you have a good handle on your suppliers, do you know the status of your suppliers’ suppliers? In an interconnected supply chain, we are only as strong as our weakest link. Who is your weakest link?
  3. Your transportation infrastructure: Even if your suppliers have product, can it get to you? Within what timeframe?
  4. Backups: No matter how well you’ve planned, the question is whether you have backups for critical materials/ ingredients that will ramp up rapidly as needed. Hopefully your supply chain is diversified geographically.
  5. Your customers: Are you in lockstep with your customers so that you are proactively managing demand or are peaks and valleys a surprise? Of course, the coronavirus was unexpected but the degree you fully understand your customers will determine your reaction time to changes in demand.
  6. Positioning of inventory: Do you have critical inventory positioned throughout your end-to-end supply chain?
  7. Your digital supply chain: Are you able to see into your extended supply chain? It could provide quite a benefit at this point.
  8. Additive manufacturing & robotics: Are you able to keep running with less people, socially distanced people and/or print on demand?

Using JIT (or any concept for that matter) without taking a 360 degree view is a bad idea! The cousin of JIT is lean manufacturing. I gained the attention of Wiley by writing that lean is just uncommon common sense (which of course simplifies it in order to make a point), but perhaps it is something to think more about. Have you put all these trendy concepts through a common sense filter? How about a risk filter? Let’s hope so! Otherwise you can be in a critical business and still not producing and running customers out of stock.

What is the answer? It depends! If you have put thought into your supply chain strategy upfront, considered risks, diversified your supplier base, invested in quality checks and top talent, and treated your employees well, it is likely your version of JIT will prove successful. On the other hand, if you saw JIT as a way to reduce inventory and were short-sighted in looking at your end-to-end supply chain and treating your employees and partners as trusted colleagues, you will likely suffer.

Getting ahead of the curve might be the only avenue to success. Consider creating a resilient supply chain and future-proofing your supply chain. Stay tuned and read more about it, and If you are interested in discussing a supply chain assessment, please contact us.

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Future-Proofing Your Supply Chain

The Strongest Link in Your Supply Chain



Future-proofing Your Supply Chain

February 21st, 2020

Disruptions abound in supply chain circles. Just consider any of the following recent events: the tariff war, global unrest, the Coronavirus, natural disasters such as the volcano in the Philippines, the Hong Kong protests and more.

We have never had a client that could claim that 100% of the extended supply chain (from suppliers’ suppliers to customers’ customers) was inside the U.S. So, we have to be prepared to navigate these types of disruptions and the related impacts.

Disruptions certainly go beyond your physical supply chain. What about your human capital, technologies (accompanied with processes) and strategies? Refer to our article on future-proofing your skills gap and assess which risks might be on the horizon in your industry.

When it comes to technologies, there is no doubt that emerging technologies are gaining steam and are starting to transform supply chains. Just consider the application of collaborative robots, automation, RPA (robotic process automation), artificial intelligence, IoT, blockchain, and predictive analytics to name a few. Big name companies are dropping big dollars into these technologies. When thinking about strategy, remember strategy is no longer a multi-year exercise. We must be thinking in terms of strategic sprints. Who knows what will happen beyond a year out!

Several high-level categories should be assessed as you think about your supply chain:

  1. Sourcing – Are you sourcing from China? Is this a viable path forward to source 100% from China? There are increased risk factors to consider. Listen to an interview I conducted with John Tulac, international business attorney, on future-proofing and doing business with China. It is time to reevaluate your supply chain footprint.
  2. Logistics – There are significant disruptors transforming this industry, ranging from e-commerce and the the Omni-channel to robotics, additive manufacturing and the digitization of the supply chain. If you aren’t incorporating these impacts in future-proofing your supply chain, you will be left in the dust. These are concepts of focus for the consortium for logistics success in the Inland Empire to enable companies to stay informed and keep up with the fast pace of change.
  3. Manufacturing – Industry 4.0 is transforming manufacturing and changing the landscape. It will be a pivotal year that separates the winners vs the losers as advances are made. See what the National Association of Manufacturers’ Leadership Council sees as critical issues
  4. Demand & Supply – There is no doubt, there is a keen interest by business owners, executives and private equity leaders on creating predictable demand and forecasting sales. The more we understand our demand plan, the better our operational performance, supplier performance and customer performance. Read about SIOP (sales, inventory, operations planning) and how it can help future-proof this area.
  5. Inventory – As the disruptions abound and executives fear a slow-down, the proactive management of inventory and advanced collaborative programs are gaining in relevance. Pick up some tips and strategies in our recent article ” Inventory Management as Fashionable as Automated Intelligence for Distributors” for ACHR News.
  6. Metrics & Predictive analytics – Keeping a pulse on performance should remain a top priority while forecasting what will be needed.

Getting ahead of the curve might be the only avenue to success. Consider creating a resilient supply chain and future-proofing your supply chain. Stay tuned and read more about it, and If you are interested in discussing a supply chain assessment, please contact us.

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Made in Vietnam

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



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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Top Trending Client Request: Reduce Inventory

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The Strongest Link in Your Supply Chain



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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Which Inventory Planning Method is Best?
Systems Pragmatist