Category Archives: Inventory

Dell Optimizes Its Way To Success

I was thrilled to see this article in Logistics Management about Dell’s inventory optimization pilot which saved them 55% in its initial application. In a mere 90 days, a pilot, rolled out to two suppliers, that was primarily focused on managing suppliers and replenishment processes via a consistent inventory policy reduced inventory, and associated costs, by 55% (from $6M to $2.7M). Imagine the savings Dell is going to realize when it rolls the new system out to the majority of its supplier base (that constitutes the top 80% of its spend), cleans, and analyzes its historical data. It’s savings will easily be in the hundreds of millions.

Compare this to Intel’s recent success through an optimized make-to-order cycle which significantly reduced inventory builds and associated costs. Do you see a pattern? I hope so!

The simple truth of the matter is that a good inventory optimization system that either contains demand planning and production planning optimization, or that integrates with demand planning and production planning systems, will save you a small fortune. So if you regularly carry tens of millions of dollars of inventory and don’t have an inventory optimization system, get one … NOW!.

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I Wish Inventory Optimization Was Mainstream!

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A recent article on Supply Chain Digest made the claim that “inventory optimization is starting to go mainstream”. If only that were true! Consider this statement from Noha Tahomay (Vice President at AMR Research) in the first “Supply Chain Leader Virtual Roundtable on Inventory Optimization” where she says that despite clear benefits … the adoption of inventory optimization is still very limited and asks why can such a powerful tool not be more widely adopted. While she postulates that it might be due to the lack of executive sponsorship and the lack of alignment between the goals of the tools and the organizational structure, the reality is that inventory optimization is still not mainstream because optimization is still feared.

It shouldn’t be the case, because it’s not 9 years ago where you needed a PhD with his own server farm to use any of the tools, but it is. People still don’t understand it, they still mistrust it, and they still fear it. It’s unfortunate, but true. That’s why inventory planning, scheduling, and forecasting will sell but inventory optimization will collect dust on the virtual shelf. The problem is that not enough vendors are offering these solutions and the vendors are not making strong attempts to educate the market on the power and simplicity of these modern tools when that should be their first priority. It’s the same problem that exists in the strategic sourcing decision optimization marketplace … very few providers (basically Algorhythm, Combinenet, Emptoris, Iasta, and Trade Extensions) and very little effort to spread the word from any of them. Both spaces need an evangelist … like Paul Martyn was at Combinenet back in the day. If easy-to-use self-service solutions were commonplace back then, things might be different today.

Do You Know Where Your Cargo Is?

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Recent articles on cargo theft from eSide Supply Management (in the ISM) and S&DC Executive (“LoJack Supply Chain Integrity Releases Cargo Theft Study”) highlighted a 2008 study from LoJack Supply Chain Integrity that uncovered 299 cargo thefts in 2008 (in the US) at truck stops, parking lots (including drop yards), facilities, warehouses, store locations, vehicles parked on the street, airports, casinos, ports and hotels across less than 600 organizations who belong to SC-ISAC. In other words, over 50% of organizations surveyed experienced cargo theft in 2008.

What does this mean? Simply put, if you move goods — you’re a target.

What can you do? First, identify your areas of highest risk. According to the study:

  • 65% (194/299) of incidents occurred at truck stops, in parking lots, (parked) on the street, and in store lots
  • 56% (168/299) of incidents occurred on the weekend
  • 52% (155/299) of incidents occurred in Texas, Georgia, Tennessee, and Florida

This says that:

  • your trucks are more likely to be targeted when they are in public areas which are less secure
  • your trucks are more likely to be targeted on the weekend when traffic and workforces are low / non-existent
  • your trucks are much more likely to be targeted in certain states, indicating the likely presence of organized crime rings

This says that you should:

  • avoid parking in un-secured public ares and, if you must, insure the trucks are monitored constantly
    (either through the use of a second driver who stays with the vehicle or real-time locator technology and software that immediately triggers an alert if the truck is moved without a clearance)
  • insure sufficient, if not extra, security is present on weekends
    on weekdays, you’ll have staff around who would notice a missing truck
  • minimize routes / stops through trouble zone
    and only use trucks that are well-secured and monitored in real-time

And follow the advice of LoJack Supply Chain Integrity which noted you should:

  1. Arm yourself with information
    What methods are criminals using to access the trucks, where are they most active, and what products are they targeting? The higher your risk, the more security you’ll need.
  2. Have a plan in place
    Be sure you’ve covered your supply chain end-to-end and that you:

    • review high-value shipper security requirements
    • developer corporate supply chain security guidelines
    • contact your insurance carrier about resources at your disposal
    • regularly evaluate and audit your transportation partners
    • establish contractual security requirements for partners
  3. Use deterrents
    Make sure your trucks have immobilization devices such as wheel locks, fuel shut-offs, air cuff locks, ignition locks, battery-disconnect switches, covert cargo-tracking, monitoring, and vehicle recovery systems.

Best Practices For Your Demand Driven Network from the Economist Intelligence Unit

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Last year, Oracle sponsored the Economist Intelligence Unit to produce a report on “the demand-driven supply chain: a holistic approach” which was released early this year. The report, which noted that businesses must improve the efficiency of their supply chains in order to maintain competitive advantage, that the principles of lean manufacturing and inventory control may no longer (be) enough, and that today’s demand-driven networks must enable companies to be flexible in applying the full array of levers at their disposal didn’t really tell us much that we didn’t already know, primarily thanks to all the research that AMR provided us a few years back, but it did have a good list of best practices in the conclusion that could use repeating.

  • Create solid, base-level demand forecasting tools, fine-tuned to eliminate anomalies and other “noise” before incorporating larger deviations and less predictable variables. You need to understand the base drivers of demand. Promotions, seasons, and unique events only serve to alter this base demand, not create it.
  • Integrate new forecasting and demand management tools with existing supply chain and logistics systems to allow visibility of supply and demand all along the network in real time. The ultimate key is to be able to detect changes in near real-time and make adjustments to adapt to them before they become problems.
  • Develop a collaborative sales and operations planning process that extends from customer-facing sales, marketing and service departments through fulfilment, procurement and logistics all the way into product development, to allow customer insight to inform all aspects of the business. Everyone needs to work off of the same set of numbers.
  • Prepare a comprehensive change management plan to foresee and deal with organisational, cultural and technological obstacles. You don’t have time to trip over your two left feet in the middle of a change.
  • Make profitability the prime objective, above simple cost cutting or revenue enhancement. Effective demand shaping helps companies to target their most profitable customers and promote their most profitable products and services, boosting the bottom line from both sides. It’s not about cost, it’s about value. It’s not how much you pay, it’s how much you make.
  • Maintain real-time demand visibility. Companies can shape demand towards more profitable business only if they have timely and accurate information on customer behaviour. You need to see the trends and adapt to them.

Want Better Forecasts? Tie Your Key Stakeholder’s Performance Bonuses To Them!

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A recent article on CFO.com on “imperfect futures”, which discussed the great deal of uncertainty in today’s economy and how hard forecasting has become, contained a novel and often overlooked idea for creating more accurate forecasts (on average). See how much your people will bet on them!

Betting, often administered through on-line prediction markets, has famously foretold the results of recent elections and Super Bowl match-ups. and is now being used by some companies to try and create a window into their corporate futures. Some companies, like Ford, have achieved good results with the methodology in preliminary applications in NPD. (Perhaps Ford should have used the methodology more broadly, given the current state of the American automotive sector? But I digress.) Electronic Arts has used it to gauge future release popularity within 2%, four times as good as the usual results achieved from in-person polling.

But I’d take it one step further. I’d make it a key factor in the determination of the bonus of each key stakeholder (who should be coming together from the various business units in the creation of a consensus forecast which combines all of your organizational intelligence) — and penalize them for each percentage point the forecast is off, either-way. You’d get more cooperation that way, since no one would want someone else deciding their fate when they could do something about it. You’d also see more scenarios analyzed in the construction of the forecast, since it would take repeated iterations before you came to a majority agreement. Thoughts?