These days, your CEO is less likely to ask if a reduction in inventory investment is possible. He or she is more likely to insist on it, make it one of the primary objectives of the company and even worse, make you personally accountable for achieving it. So the pressure is on… Graham Best attempts to lighten the load:
You may be providing spares for a fighter jet, or stocking a range of t-shirts with pictures of cats on. The products are very different but many of the problems are the same. The trouble is, inventory used to be regarded as an asset not as a cost. So it was acceptable to throw inventory at your supply chain in order to keep availability high and your customers happy.
Now times have changed and it’s generally accepted that you need the lowest levels of inventory possible (without depriving your customers of their much loved cat t-shirts). The technical challenge is to identify target stock levels for your products based on numerous and moving sources of information.
Sources of potential supply,
Sources of potential demand,
Supplier lead times,
Not only that, you need to regularly review all this information to ensure that it’s accurate and perform a “what if” analysis to help you see into the future. So it’s no wonder that most companies have been going “spare” using spreadsheets (because we all know that ERP does not handle this scenario very well...)
In reality, the solution to this problem has been around for decades, but relatively few companies have done anything about it.
Software vendors have historically charged an arm and a leg for purpose built demand planning and forecasting solutions. But this type of solution was over engineered for the typical business and so most of this expensive functionality would never get switched on. It also required highly trained operators and tight integration with ERP, so only the most well heeled companies could afford to implement and maintain this type of application. The remainder had to soldier on with spreadsheets and guess work.
So what has changed?
Smaller inventory management applications have matured enough over the years to provide the essential functionality without all the extra bells and whistles into a sound package suitable to run a typical business. These applications can be implemented very quickly and are simple to use.
So what can you do about it?
- Find some cloud based (Saas) inventory management software for £1,000 - £2,000 a month. You may not get sophisticated functionality in every single area, for example repair management, but all the basic functionality will be there. It should also include management reporting, dashboards and ongoing access to new releases.
- Offer to provide the supplier(s) with some historical data so that you can see the system running with your inventory. From this process you will be should be able to derive a return on investment which will make the business case a no–brainer.
- Involve colleagues from other areas like purchasing who will directly influence the performance of the system. If you are recommending purchase orders for example that are not executed correctly (because your suppliers don’t meet expected lead times) then it’s not going to work. One of the reasons that systems like this have failed in the past is a lack of buy in across the business.
- Get your IT department on side. You don’t need a 6 month integration project with your ERP systems, just a regular refresh of the data that feeds the inventory management software (a CSV or Excel file uploaded regularly via Drop Box is perfectly adequate in most cases)
Cost effective software and an understanding of how your overall supply chain is impacted can at last provide an answer for the majority. Don’t delay any longer though, as 25% inventory reductions are quite common.
That should get the CEO off your back for a while at least!
Written by Graham Best, Director of TSB Supply Chain Limited.
Published by Monk Chipman