Daily Archives: June 13, 2010

Five Common Inventory Management Mistakes from Demand Solutions

Demand Solutions recently released a white paper on managing inventory for optimal advantage (registration required) that overviewed 10 common inventory mistakes and how to correct them. Of these, the following five can cost an organization dearly if not corrected.

  • Forecast Management without a Process

    All stakeholders have to agree on the process and the forecast that results and someone needs to own the process to insure it’s implemented properly. Otherwise the budget will be padded and the end result will be obsolete inventory and associated losses.

  • Not Talking to Customers

    Good inventory management is more than just the right volume, it’s the right volume at the right time in the right place. Be sure to understand what is driving customer replenishment patterns to insure that production is synched to customer needs. Otherwise, inventory can build up for months at a time, which will incur additional storage costs.

  • Forcing the Budget

    Don’t overlay the budget on top of the sales forecast. Both are approximations and both need to change to reflect reality. Attempting to synch them will result in production patterns that don’t match actual demands.

  • Too Many SKUs in Too Many Places

    This greatly decreases warehouse efficiency and increases fulfillment costs.

  • Never Trying New Things

    New technology provides better capability for ongoing, collaborative improvement. Avoiding new technology will limit operational efficiency and cost savings opportunities.

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Getting Execution Right in a Megatrend

A couple of posts ago, we told you that sustainability is the current megatrend and that your organization needed to adapt. Then, in our last sustainability megatrend post, we discussed the four stages of value creation that traditionally identified megatrends and what they meant to your supply chain. In this post, we’ll offer some tips on getting execution right, courtesy of the Harvard Business Review and its article on the sustainability imperative.

While vision, and a good working knowledge of the value creation process, is important, the key to success ultimately relies in execution. Specifically, a company has to get leadership, methods, strategy, management, and reporting right. In each area, the company must transition from tactical, ad hoc, and siloed approaches to strategic, systematic, and integrated ones.

Leadership: Strategic sustainability initiatives need C-level leadership. The leader needs to be able to move the company through progressive levels of environmental maturity, from regulatory compliance through energy conservation to the design and creation of products that are totally green and free of hazardous materials . The leader will do this by redefining performance expectations, specifying accountability, tracking results, and rewarding success at each stage of maturity.

Methods: The company must adopt new methods of value assessment that assign value to sustainability and adequately capture the risks associated with not going green as well as the benefits of a proposed solution. Business case analysis, scenario planning, risk modelling, and even cost accounting must all be updated to encompass environmental sustainability.

Strategy: The focus must be on the creation of strategies that are sustainable at the core. This will become easier over time as more analytical data from sustainable initiatives becomes available and as more companies adopt open-source and crowd-sourcing approaches that engage outsiders with expertise in sustainability.

Management: For sustainability to truly take root in an operation, a firm must integrate sustainable goals into day-to-day management. Success lies in operations, and managers on the ground have to lead the charge. Sustainable objectives should be incorporated into processes, training, and compensation plans.

Reporting: With increasing public scrutiny, governmental regulations, and customer expectations, companies will need to include sustainability reporting in annual reports and forward looking statements in addition to sharing required information on energy usage, carbon footprints, etc. with new environmental agencies.

In addition, the leaders will adopt sustainability scorecards to keep track of their success. This will ultimately enable a company to chart their impacts in financial terms, which will make it easier for market analysts to identify the advantages of companies that have embraced eco-platforms.

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