Is your inventory balanced?
Unfortunately most companies do not have a balanced inventory. They either have too much of a SKU or not enough. This imbalance can cause customer complaints, lost sales, and higher operating costs.
If you recall from previous Articles, a buyer made the major mistake of overbuying a large amount of computer cables from the supplier. An initial forecast started at 100,000, quickly moved to 600,000, then dropped to 200,000. What caused the problem? The main problem is that the 10 Principles were not followed:
The 10 Principles are:
- Get the Left & Right Hand Working Together
- Clearly Define Customer Service
- Tighten Your PLM Practices
- Know Your Products
- Look Forward, Not Backward
- Get Your Lead Times Right
- Manage Your Partners, Don’t Let Them Manage You
- Manage By Exceptions
- Use Integrated Metrics to Drive Improvement
- Conduct Periodic Tune Ups (This Article)
In our case study, the Buyer added the new SKU to his line-up with no discussion about what its impact would be to overall sales, and more specifically, to other SKUs’ productivity. The initial forecast was developed with no check and balance and all related inventory plans were executed without challenge.
In this article, we will explore “Conduct Periodic Tune Ups ", and how that can greatly improve your efficiency.
Identify those functions that you will Periodically Review
Form a cross functional team where multiple functions impact the results. as an example, PO management and lead time should include Buyers, Analysts, and DC operations. Buyers ultimately control vendors, Analysts use lead time to plan inventory levels, and DC can impact the inbound flow of goods. Unless each function knows the impact they have on the overall metric, and are held accountable, the process will fail.
Manage a Formal Schedule
There are a number of functions that you will want to keep your eyes on. Conditions change and updating things that will impact the balancing of your inventory. Lead time has a direct impact on inventory levels, in stock position, and ultimately customer service. Monthly reviews of key vendors or skus is a low maintenance way to help balance your inventory. An automated exception report that identifies outliers can allow Planners to quickly hone in on problem areas.
Whatever you want to conduct periodic reviews on, make a formal schedule and generate a report that will provide performance results.
Focus on real KPIs – it’s not a comprehensive performance review
The idea of Key Performance Indicators (KPIs) is often talked but typically not practiced with a good discipline. Most people either overanalyze the performance or take the eye off the critical factors. The requirement of good management doesn’t end with selecting right KPIs. Companies need to make sure, the source data is appropriate, different functions need to utilize the common data source, have a common dashboard for shared processes and finally custom views for specific uses.
We discussed this topic in a prior article in the series “Use Integrated Metrics to Drive Improvement.” In the period review of performance, only the selected KPIs need to be reviewed as opposed to reviewing everything in performance dashboard.
Build a culture of Continuous Improvement
Culture means your company’s “way of doing things.” It starts with the common beliefs which drive everyday behavior. Establishing the right beliefs, that engage everyone to continually improve every aspect of business, is top management’s ultimate responsibility. While building the continuous improvement culture requires adoption of industry standard programs like six sigma & lean, the initial hurdle is the “mindset” of top leadership in the company.
While most leaders agree on the idea of continuous improvement, they often don’t know where to start. We recommend the “think big, start small” approach. So on one hand you don’t lose the sight of your company’s vision of high performance, at the same time, you take practical steps on the journey.
We believe “The Balanced Inventory Program™” is an excellent starting point on this journey to high performance and building the culture of continuous improvement.
We hope you have enjoyed the series of articles about The Curious Case of the Computer Cable and that the tips we have offered have given you some ideas that you can implement to better balance your inventory.
Another series of articles related to improved inventory management practices will begin shortly. Please stay tuned.
The Balanced Inventory Program™ will help you to achieve all your inventory objectives. We offer a No-Charge Starter Stage. During this Stage, we will help you assess your current inventory management practices, develop a preliminary business case, and start working your Balanced Inventory Blueprint.
If you have not read the previous articles, they can be found at www.supplychainsystems.com/biparticles.
For more information, contact us at firstname.lastname@example.org or call 312.667.4654/905.454.8529