Reducing complexity and uncertainty in the supply chain

At a recent event held by the SCLAA, Henry Brunekreef, Principal Consultant with Logiworx provided some valuable insights to reducing complexity and uncertainty in the supply chain. His key messages can help increase productivity for all major Australian companies.
According to Brunekreef there is an urgent need to educate senior management within organisations on the major difference between the supply chain view of inventory and the financial inventory management perspective.
Inventory is needed to manage the uncertainties in demand and supply and to balance demand with supply capacity.

How much is enough inventory?

In a top-down approach inventory strategy is set by the logistics model – where a "push and pull" strategy meet.
In a "bottom-up" approach, however, inventory levels are determined by the product supply and demand characteristics and the implications of these on inventory management.

When it comes to supply and demand, what are some of the drivers?

With demand, trends and seasonal patterns must be taken into account. When assessing product characteristics you must consider the critical nature and importance of the product as well as packing and value density.
With supply, you must consider lead times and the degree of supplier reliability to consistently meet quoted lead times.
Supplier lead-time variance has a much greater impact on safety stock levels (and service levels) than demand variance.
The implication of supply and demand variability means a need to focus on real areas of influence and importance.
Understanding demand, product and supply characteristics is the foundation to defining the right inventory management strategy for your business. It will drive the decisions on the types of replenishment – when and how much to order.

The goal for inventory management is to increase customer service while decreasing stock value. How? 

Focus on analysing root causes and developing action plans.
Supply actions should focus on establishing fixed and reliable lead-times. When these are established your attention turns to reductions in lead-times – especially on high-value stock items. This is done in consultation with suppliers and logistics partners.
From a demand perspective, identify and eliminate "self-inflicted" artificial fluctuations in demand by creating awareness among internal stakeholders.
Specifics include the impact of sales bonuses, quarter-end activities, price movements and payment terms

And finally, product actions should again focus on brand and category development stakeholders. This is to create awareness for the way product assortment impacts on supply chain cost and efficiency.
Examples of initiatives include:

• Creating an integrated demand driven process across the supply chain
• Continuous replenishment models for fast-moving products
• Fixed supplier lead-times
• Focus on lead-time reductions with specific targets
• Implementation of an effective Sales & Operations planning process
• Channel collaboration to provide visibility over demand variability and develop actions to reduce variability
• Gain marketing involvement in assessing and reclassifying product assortments

The results should be seen in service (DIFOT) performance, inventory reductions and reduced resources and cost in the supply chain.

In conclusion, Brunekreef says inventory management concepts should be an integral part of overall supply chain strategies.
Inventory strategy is impacted by supply, demand and product characteristics.
It is the role of Supply Chain, Logistics and Inventory managers to reduce uncertainty and complexity in the supply chain.
Senior management also play a vital role in the management and managed reduction of inventory. They need to understand the factors that influence inventory, rather than taking a strong financial view of inventory.

Inventory management is not about dieting – it's about weight management.
Logiworx has proven methodologies to reduce complexity and uncertainty in the supply chain. We can show you how.
Visit: www.logiworx.com.au