Reduce Inventory with Better Product Flow

One of the goals of every manufacturing or distribution-oriented business should be to operate with the right amount of inventory – usually less than has traditionally been used.  A supply chain that is designed and managed to require less material or finished goods will operate at “high velocity”, moving product through it quickly while meeting customer service needs.  It will reap all of the benefits of doing that:

  • Reduce working capital requirements
  • Reduce storage space needs
  • Reduce the costs of handling and repositioning inventory
  • Reduce loss and damage
  • Reduce the risk of obsolescence or product going out of code date

Making product flow better requires, depending on specific business circumstances, improving one or more of these:

  • Right-size inventory across materials, work-in-process, and finished goods.  We are all familiar with the technology for optimizing finished goods inventories by SKU to achieve the highest service level relative to total inventory.  But there has been less talk about organizing inventory vertically in the supply chain to best match a business's overall strategy.  Depending on the degree of manufacturing flexibility you can develop, it may make sense to hold more inventory at the work-in-process level and dramatically decrease finished goods.  Or have a supplier hold more material for you and, again, decrease finished goods inventories (this is a key part of the Produce-to-Demand strategy).
  • Better short- to medium-range supply chain planning.  Most businesses have created a patchwork of processes and tools to plan from S&OP planning horizons (months into the future) down to weekly and daily decision-making about what to manufacture, at which plant, and exactly when on what equipment.  Which plans are driving which other plans?  Licensing a set of planning software from one provider does not typically lead to fully integrated planning for near-term operations, as the software tools support and sometimes encourage planning that doesn’t bring together all of the relevant data to build a truly unified operating plan.  But a knowledgeable re-development of planning processes can integrate planning, combined with some changes in how tools are used.  And simplified, well integrated planning leads directly to more effective inventory use.
  • Deploy inventory more effectively.  For businesses with distributed finished goods inventory (e.g. most consumer packaged goods companies), figuring out how much to have at each location is one of the most important sets of daily decisions that are made.  Optimizing inventory deployment requires subtle tradeoffs among service levels at different locations, transportation costs, customer promotions, whether to manufacture more of an item sooner than expected, and even seasonal inventory management.  Standard planning software is not capable of balancing these tradeoffs to optimally deploy inventory, although more advanced algorithms are available to do that.

Moore & Associates brings the kind of simple sophistication to planning product flow and inventory reduction that clients need.