Category Archives: Inventory

Making the Warehouse More Sustainable

A recent article over on Logistics Management, which was titled 7 Trends in Sustainable Design but which only gave six (as number six was absent from the list), gave some good tips on making the warehouse more sustainable that can be retroactively applied to existing warehouses.

  • Better Lighting
    Lighting can consume 30% of energy use in a DC. If you reduce this by 33%, that’s 10% off of your energy consumption. And when you consider that many DCs have too many lights that take too much power on for way too long, you see huge opportunities. Be sure to install daylight and motion sensors to make sure that lights only come on when it’s not sufficiently bright and only stay on when there is someone there. Switch to energy-efficient fluorescent fixtures, which can be turned on and off on demand (and are suitable for intermittent operation). And if any renovations are being done, install solar tubes, lighting tubes, and clear glass to take maximum advantage of natural daylight.
  • High-Volume Low-Speed Fans
    Designed to move massive columns of air at low speeds, HVLS fans can help regulate a facility’s temperature year-round from floor to ceiling and permit facilities to increase or decrease thermostat temperature settings between 3 degrees and 5 degrees without realizing any negative temperature changes. Furthermore, if they are networked, monitored, and controlled from a central location, cooling and heating costs can be decreased by up to 50%!
  • Returnable Plastic Containers (RPCs)
    At the very least, use RPCs in internal captive pools designed for a particular (set) of operations, or, if possible, in external shared pools with standardized designs that enable supply chain wide efficiencies. These can minimize operating costs (as non-reusable containers cost money) and minimize waste reduction (by 90% plus), which further reduces costs.

In addition, the following tips not mentioned are also applicable:

  • Use Electric Lifts
    Fuel-based lift trucks use non-renewable resources and produce pollution, which increases the air circulation requirements of the warehouse (and demands even more energy be used). Electric lift trucks produce no pollution and the batteries can be recharged from renewable energy resources.
  • Harvest Your Own Power
    Use ground source heat pumps, solar panels (on the roof/sides of the building) and/or windmills to maximize the use of your own free, sustainable energy sources and minimize your dependence on the grid.
  • Harvest Rainwater
    And use it for cleaning vehicles, flushing toilets, and other toilets where the water does not have to be pure or sufficiently chlorinated.

Can We Make EOQ Relevant Again?

This summer, Supply & Demand Executive published an article on how to make EOQ relevant again. Going through the recent archives, it got my attention because it is simultaneously a metric that should have never lost relevance and a metric that loses relevance when too much emphasis is placed on JIT or avoiding stock-outs (at all costs).

EOQ, short for Economic Order Quantity, is an old-school metric whose function is to identify the optimum order size that has the lowest cost. Defined as the square root(2UA/IC), where:

  • U is the (annual) usage,
  • A is the acquisition cost per order,
  • I is the inventory carrying rate, and
  • C is the cost per item

if demand is relatively constant, or at least known and predictable, the item is purchased in lots or batches, and the order preparation and inventory carrying costs are constant and known, then the formula tells you how much to order (and, as a result, how often to order) to minimize your overall order cost.

But, as the article points out, even assuming you can mesh this with your JIT production schedule (timing the orders so that you don’t carry too much inventory but still keep production running smoothly), these are not all of the costs associated with an order. Other costs include:

  • purchase order processing cost (which should be included in acquisition cost)
  • a true ICC rate (and not the holding cost computed as the extra cost of money invested in stock) that takes into account opportunity costs (which should be included in I)
  • taxes paid on inventory (which can be substantial and why many auto dealers, for example, have year end clear-outs) (which should also be included in I)
  • stock quantity shrinkage loss due to handling, pilferage, and theft (which should also be included in I)
  • stock risk losses due to product obsolescence, deterioration or shelf life expiration (which should be factored into C)

Thus, in order to use EOQ, you need to first insure that all of these costs can be accounted for. Then, as per the article, you need to insure that:

  • the product(s) are offered at a single price,
  • demand is predictable,
  • prices will not change (significantly) during the time the order is in stock,
  • stock will not exceed the shelf-life,
  • a single order can be placed, and
  • freight is included in the purchase price, or can be factored in.

In this situation, if the additional costs identified above are factored in, EOQ is still very relevant and should be used. However, if multiple assumptions are violated, EOQ may not be appropriate, and, more specifically, if demand is slow, or very unpredictable, then JIT is the preferred method.

And, furthermore, if you

  • establish minimum quantities to reflect minimum purchase volumes,
  • set a maximum ceiling stock for difficult, bulky, or large items, and
  • base adjustments on multiples of packaged lots

then you may find that EOQ is still right for you.

Did Descartes Miss the Point in Its List of Four Things You Can Do Today To Reduce Fuel Costs?

Given that Gas Prices are Too Damn High and that this situation is not about to change anytime in the near, and even not-so-near, future, a recent white paper by Descartes on Reducing Fuel Costs: Four Things You Need to Know and Can Act on Today caught my attention. However, while their suggestions are good, I think they kind of missed the point. Going straight to the section on What You Can Do Today, Descartes suggests that you should:

  • Decrease the Total Miles/Kilometers Driven by the Fleet
    Since the vast majority of fleets still drive inefficient routes to serve their customers, this is a good suggestion on the surface, but it’s easy to take this too far. For example, while the shortest route from Birmingham, Alabama to Indianapolis, Indiana might be straight through Nashville, Tennessee, driving through there at rush hour is not the best move as the trip could take an extra 3 hours and every hour the engine is running, gas is being consumed. This requires some smarts. Sometimes longer trips are more efficient.
  • Minimize Idling
    This is a great suggestion. Not only does this burn fuel, but it harms the environment. However, when a conscientious driver is idling, it’s not when he’s making a delivery, but when he’s waiting to make a left hand turn. The right routes don’t have left turns. That’s why UPS does it’s best to eliminate them. However, this can slightly lengthen a route, which is in conflict with the last suggestion.
  • Change Driver Behaviour
    If driver behaviour is a major cause for fuel inefficiency, then this is obviously a good thing, especially if the driver is excessively speeding (well beyond the fuel efficiency zone), (too) rapidly accelerating, and hard-braking on a regular basis. But the driver’s behaviour might not be entirely his fault — it could be a fault of your training program, which might be mentor-driven by your senior drivers who have had bad habits all of their driving career and pass them on. The first step should be to check your training programs and requirements and make sure your drivers get the right behaviour day one.
  • Implement regular maintenance monitoring plans.
    Vehicles with properly inflated tires, well maintained engines, and good braking systems do maintain less fuel, but don’t go overboard with preventative maintenance. An overly aggressive maintenance plan will replace parts needlessly and eat up the savings you get in decreased fuel utilization pretty quickly. Monitor aggressively, but maintain sparingly.

In other words, it’s suggestions for what you can do today were good, but not great. However, the section on how technology can help was much better. In this section, it made four recommendations, and three of them were on the money.

  • Route Planning and Optimization
    This optimizes the routes to balance minimum driving distance and minimum run time (by adding in right turns to reduce idling and slight detours to bypass commonly congested areas) across the fleet and, as the paper notes, can result in a reduction of total route length by 5% to 30% when done properly.
  • Mobile & Tracking Solutions
    This allows you to track your trucks and know the exact location of your drivers, the routes they have taken and, most importantly, how the fleet is performing against the plan.
  • Telematics
    A constant measurement of engine data and driver performance can allow engine problems to be identified immediately and bad drivers to be singled out for training to improve their performance.

The last recommendation, not so much. Basically, the paper recommended a cloud-based solution for all the standard reasons, but clearly forgot that the cloud is not a fluffy magic box and not all of the promised advantages will materialize.

If you track, measure, and optimize, you will minimize fuel requirements while improving performance, but no one tip is going to save you and over-simplifying the problem can cause as many problems as it solves. The only way to truly save fuel is to reduce delivery requirements. Do you need as much? Do you need it as often? Can you get the product from a geographically more proximate supplier at a comparable cost? These are the real questions you need to ask!

Are All of Your Supply Management Planning Processes Aligned?

A recent article over on Supply Chain Brain from JDA software on Building the Supply Chain of the Future made a great point when it noted that in any supply chain there are … core business processes that must be closely synchronized in order to enable organizational agility and market responsiveness. Unless business processes are aligned in closed-loop planning processes, the organization will be unable to sense demand shits and … balance a number of priorities, including costs, customer service levels, supply risks, production constraints and environmental targets in its quest to achieve the best possible outcome.

The article from JDA indicated that six core planning processes must be synchronized in order to achieve agility, market responsiveness, and success. And they are right. The following six planning processes must be synchronized:

  • Sales & Operations Planning (S&OP)
    A good S&OP process provides a disciplined cadence for monitoring and synchronizing demand, production, supply, inventory, and financial plans via a rigorous Plan-Do-Check-Act process as a foundation for allowing the supply chain to share a common perspective on issues and potential resolutions.
  • Demand Planning
    Typically involves the utilization of advanced statistical and predictive modelling to ensure that sourcing, production, inventory, transportation, and distribution models are optimized on a shared forecast.
  • Inventory Planning
    Good inventory planning allows for tailored “designer” models for each category and commodity to minimize overstock, out-of-stock, and financial risks based upon key commodity and category attributes.
  • Master Planning
    That allows for S&OP, inventory, and demand-based supply plans to be analyzed and updated daily in response to demand and supply changes.
  • Factory Planning & Scheduling
    The creation of optimized production plans by plants by scheduling backward from the requirement date, with material and capacity constraints simultaneously considered for feasible plan creation.
  • Collaborative Supply Planning
    That allows manufacturers to monitor multiple tiers of the supply chain and each supplier that is supplying a raw material, component, or service necessary for the creation of each product being sourced from a tier 1 supplier and work with multiple suppliers simultaneously to identify minor hiccups before they become major issues to collaboratively resolve a problem before it becomes a major headache.

But this is not enough to ensure success in today’s fast-paced fickle global marketplace. Not only do we have extreme demand, supply, and cost volatility across materials, components, products, and markets, but we also have extreme competition on the sales side as penny pinching buyers, short on cash, are looking for the best deal possible. As a result, your organization not only has to be leaner and meaner than ever before, but it has to be more focussed on the value it can provide. As a result, your S&OP, demand, inventory, factory, master, and collaborative supply plans have to be linked to, and reinforce, your organizational strategy. As a result, each of these plans need to be aligned with organizational:

  • Strategic Planning
    which is the process of defining the organizational strategy and direction and the allocation of resources, financial and human capital, to pursue this strategy.

If these seven planning processes are aligned, your organization just might have what it takes to make it through this decade and emerge a supply management leader when the smoke clears.

Open Up Your Supply Chain With E2Open

Today is the official launch of E2Open‘s new Collaboration Center, E2Open Version 8.0. The focus of this release are their new supply dashboards with real-time KPIs, predictive analytics and exception notifications designed to allow an organization to manage its global trading network across multiple supply tiers.

E2Open was founded in 2000 with the vision to provide supply chain managers visibility into their entire supply chain network — beyond just the first tier of suppliers because problems often start with your suppliers’ suppliers and your suppliers’ suppliers’ suppliers. Getting visibility into a late shipment or raw material shortfall as soon as it happens gives an organization time to find an alternate supply or alternate go-to-market strategy, as opposed to finding out the day after your supplier was supposed to ship. Since then, E2Open has gone through multiple versions of its platform and its E2open Business Network (8 to be precise) and now offers solutions in Collaborative Supply Planning, Demand Management, Logistics Visibility, Order Management, Inventory Management, and B2B Managed Services with a customer list that includes Blackberry, Dell, FoxConn, Hitachi, Motorola, and Seagate to name a few.

However, today we are only going to focus on its new collaborative platform and its supply management dashboards to be precise. Why would I do such a thing, especially since I repeatedly claim that Dashboards are Dangerous and Dysfunctional in full agreement with Robert D. Austin? Because the reason they are dysfunctional is that they lull you into a false sense of security when you see a lot of green. As I said in SI’s now classic post:

a dashboard can not tell you how well you’re doing … the best it can do is capture the data it’s been programmed to capture, roll-up the metrics it’s been programmed to roll up, and do the built in calculations of efficiency based on those roll-ups.

As a result, even if it tells you that 90% of spend is “on contract”, that doesn’t mean it is. It won’t tell you that 10% of spend has been misclassified under the wrong code and is being reported as on-contract when it’s really, really not. The truth is that:

a dashboard can only provide an upper bound on how well you’re doing, and this is useless. Reporting that my efficiency is at most 98% when it is in fact 92% is useless and unactionable.

However, if the goal is reversed from trying to tell you how well you are doing, and giving an inaccurate upper bound, to how poor you are doing, and give an accurate, minimal lower bound, it becomes useful. And if you can then define metrics such as inspected orders, reviewed invoices, verified shipments, etc. and report on the uninspected orders, unreviewed invoices, and unverified shipments (etc.), then you not only know everything that’s wrong but how many dark corners could be holding problems waiting to materialize but where to look when the problems you know about have been solved.

And that’s why E2Open’s new dashboard, developed in HTML5 and available through your browser, is useful. Not only does it provide deep, near real-time insight into your global supply network, with data aggregated across the multiple tiers of your supply network as fast as the platform can get access to it (which is real-time if the suppliers are using a modern supply management system with real-time query / export capability or once a day if the supplier is still on an old ERP/MRP that does a daily export in CSV to a secured FTP directory), but the drill-down dashboard can be configured to display whatever KPIs and metrics you want, however you want.

You can choose the standard indicators that show that 98% of your orders are expected to ship on time, based upon tier-1 and tier-2 suppliers shipping their components and raw materials on time, or you can invert it and show that 2% of your orders are late. Every metric can be reversed and you can filter what is displayed. So, if you want, you can set it up to show ALL RED and just show you

  • all the problems the system has identified that need an investigation and/or resolution and
  • how many records, products, shipments, etc. have not been manually reviewed, tested, verified as this will tell yo exactly where problems could be lurking and, if the count is high, where more oversight might be required to prevent new problems.

It’s not the standard configuration, but it is supported — and the ability to razor sharp focus into issues two levels down into your supply chain within 24 hours of your supplier’s supplier reporting a delay is fantastic. And, unlike most “dashboard” products, they support the creation of multiple public and private “dashboard” pages, at different levels of visibility and granularity, to allow each user to track all KPIs, metrics, and issues relevant to them. It’s not trying to be a one-size fits all solution because E2Open recognizes that, in supply chain, one size does not fit all.

Furthermore, 90% visibility at each tier is possible very quickly as they have done over 400 ERP / MRP / Supply Chain system integrations to date and can on-board suppliers on all of the major platforms very quickly. And they even have the ability to do trending and predictive analytics to identify where problems might occur — which is useful when you know that somewhere in a certain data blackhole there is likely an issue but are unsure where to start.

E2Open‘s new release is worth checking out. The platform strives to give you a single version of the truth across your supply network and does a good job at doing it. And the inventory management / collaborative forecasting drill down capability is just as detailed as some of the best inventory solutions on the marketplace.