Category Archives: Inventory

What To Look For in a Modern Inventory Management System

A recent article in Canadian Transportation and Logistics on “when choosing new logistics software, true competitive value comes from creative execution not just buying the hottest system” made some great points in what to look for when choosing a new inventory management / warehouse management system. Often overlooked, the following features are important:

  • multi-mode inventory update
    The system should accept automated updates from POS systems and manual updates from individuals who “eyeball” inventory.
  • automated “push” updates to individual locations
    A user shouldn’t have to log-in to a central portal to get inventory updates across corporate locations. The updates should be “pushed” to individual clients automatically, just like RSS feeds are “pushed” to client readers.
  • integration with Excel
    Let’s face it, some locations aren’t going to have modern inventory management systems and some users just aren’t going to let Excel die.
  • one-time event tracking
    Not all inventory moves in regular shipments. Unless one time events are tracked, the full picture is not gained and an understanding of the breakdown of regular inventory movement vs. special / expedited inventory movement will be missing.
  • equal support for inbound and outbound
    A storage container behind a store can be a “warehouse” which can redistribute inventory to other stores where its needed. Thus, inbound (to the store) and outbound (to other stores) are equally important.
  • Business Intelligence (BI) support
    Either built-in, or easily supported through XML export.
  • a Multi-Tenant SaaS Implementation
    The “cloud” is where it’s at for many companies, so failing to support the “cloud” will limit adoption and integration options.

Cross-Functional Tactical Planning Matters

Because if you don’t get tactical planning right, you cannot align cross-functionally, as pointed out in a post over on Supply Chain Shaman by Lora Cecere who said Enough!

So how do you get tactical planning right? According to Laura, you need to address four attributes:

  • Assessment
    Tactical planning aligns functions beyond the enterprise with market drivers and insights using outside-in thinking. It goes beyond a corporate silo.
  • Action
    The team must be knowledgeable and have the authority of line management to act.
  • Accuracy
    Companies need to have access to the right data model and recognize the different value networks because one model does not fit all supply chains. The appropriate risks and opportunities are only identified when tactical options for a strategy are evaluated against market drivers.
  • Timeliness
    Analysis needs to happen within a finite window of actionability.

Then you have to understand the success requirements. According to Laura, to be successful you need to first answer three questions:

  1. What is the goal?
    Good tactical outcomes cannot be reached if the company is not aligned on the strategy. The goal has to be well understood.
  2. What does good look like?
    How are incentives aligned cross-functionally to achieve the goal? The answer is more than rewarding organizations for the same-old same-old.
  3. What are our risks and opportunities?
    Has a proper sensitivity analysis been performed? Has the right data been used?

Once you have the answers, you can start proper planning. Until then, the questions need to be addressed and re-addressed until they are understood.

How do you achieve allocation success? Focus on demand.

A recent article in Supply & Demand Chain Executive on “5 secrets to allocation success” hit the nail on the head when they focussed in on a demand driven strategy built on product life-cycles. The key to success in the consumer market is to fill real demand at the source, not fictional demand in cluster-based model. It’s not what you think will sell, but what customers actually want to buy. Honing in on that makes all the difference.

The tips detailed in the article were:

  • Use Demand to Drive Allocations
    Last year’s numbers don’t matter, especially if the current instantiation of the product is different, if the economy has soared or tanked, or the market has moved to a new platform. For example, if you’re selling software that runs on discontinued computers or smart-phones, you’re out of luck.
  • Think Locally
    Many retailers allocate product to store clusters in small geographic areas. While this sounds great in theory, since it’s easier to forecast demand based on regional averages, it’s lousy in practice since there can be micro-pockets of customers with similar desires that can result in significantly different demand levels at each individual store due to local economics and cultural factors.
  • Adopt a Push-to-Pull Strategy
    New products should be pushed based upon attribute-based demand profiles and then pulled based upon revised demand forecasts.
  • Hold Some Inventory Back
    Even though most product should be pushed and pulled using just-in-time deliveries, some inventory should be held in reserve, especially for new products, until the demand levels are understood.
  • Make Allocation Management a Priority
    Otherwise, it will go by the wayside.

How Much Can A Small Enterprise Really Save With Just In Time Inventory?

A recent article on “wringing cost out of the supply chain” in World Trade Magazine suggested that carrying too much inventory can lead to a significant hit on the balance sheet for a SME and that SMEs should use a JIT inventory strategy to lower costs. And while I agree that this is a good strategy for MEs and LEs, I’m not convinced this is always the case for SEs with less than 100 Million in revenues.

First of all, as the article notes, SMEs often struggle to come up with the resources for payroll, much less [the resources to] develop intricate supply chain models, optimize inventory levels, and calculate their carrying costs. Unless the savings are significant, they will quickly be eaten up by the additional manpower needed to design, execute, monitor, correct, and maintain the JIT strategy.

Secondly, they will likely need help at first. And while this could come from a logistics provider, this too will come at a cost. Either the logistics provider will assign a resource to manage the JIT strategy for the SE and up their rates to cover the cost of the resource assigned to manage the JIT strategy, or the provider will simply store inventory on behalf of the SE in shared warehousing, which still increase the logistics cost. So even though some savings may be found, they won’t be as significant as one might expect. Furthermore, the logistics provider is not likely to be in a position to sense demand changes and this could increase the possibility of a costly, and even business threatening, stock-out. Since most SEs operate on (relatively) slim profit margins, a stock-out on a key product line could not only cost revenue, but customers vital to business success.

Thirdly, and most importantly, the expected savings can be wiped out by a single, short-term, supply disruption. Consider the example presented in the article for a 40M company. After all is said and done, the reduction in net income before taxes is a mere 47,000! That’s an expected reduction of only 0.1%! A single volcano erupting, port going on strike, or political breakdown that causes a one-week delay in your next order and that projected savings is dwarfed by the magnitude of the loss the SE will be facing. The extra 50K is now an insurance payment.

I might be wrong, but I don’t think JIT is right for SEs. Good inventory management with reasonably low safety stocks in shared low-cost warehousing, certainly. But lean? I’m not sure the SE can afford it!

Have Low Cost Brands Priced Themselves Out of the Supply Chain?

A recent article over on World Trade Magazine that describes “a new spin on just in time” describes the impact of SKU proliferation on supply chains and how many distributors and 3PLs now have to deal with replenishment requests from retailers that are less-than-pallet or less-than-case. As a result of name brand and private-label brand proliferation across many categories of consumer goods, there are now more products competing for the same shelf space and retailers are carrying less stock of each item and issuing more frequent replenishment requests for fast-selling items.

The article also notes that, as a result of the recession and a (dramatic) increase in quality in private label brands, we’re seeing consumers move from premium brands to what might be appropriately called, more mainstream products, and staying there. This means that private label brand sales are steadily increasing at the expense of name brands of similar quality that have gone from being the low-cost option to the more expensive option. At some point, a tipping point will be reached and the name brand product will disappear from the shelf.

Think about it logically. As sales of a certain brand increase, that brand becomes a top-seller and an important contributor to the store’s bottom line in that category. Priority will be placed on the brand to minimize the risks of stock-out and to find ways to decrease the cost to maintain the increasing sales trend. In-stock thresholds will be bumped up and order quantities will increase, decreasing the amount of storage available, and in-stock thresholds for, the low-cost name brands. At some point, the replenishment cost for the low-cost name brand, which will always be less-than-pallet and/or less-than-case will become prohibitive, as it will increase the product’s cost (in contrast to the decreasing cost of the private-label brand which now has sufficient volume to be replenished economically), and the sales will start to drop substantially relative to the private-label brand. At this point, the retailer will just drop the low-cost name brand, knowing it will be able to make up most of the sales in its own private-label brand. It’s been happening for years.

Here in Canada, President’s Choice, the private-label brand of Superstore (owned by Loblaws Inc, which is a top 2 or top 3 grocery retailer in most Canadian provinces), has been bumping low-cost name-brand alternatives off of the shelves for years. For many types of products, your only choice now is private-label or considerably more expensive name brand. And since PC products are often as good as the similarly priced low-cost name brands, or no-name brands, if not better, no one cares. (In some categories, you literally have to pay twice as much for a premium brand to find something better.) In the US, Target is a prime example. They have their own housewares and clothing lines, and they are often better than many of the more expensive name brands. As a result, many stores typically only carry the Target brands or the (considerably) more expensive premium brands.

In other words, it seems that the low-cost brands, that launched big in the 80’s, have now priced themselves out of business as the big-retailers now individually account for enough demand that they can not only cut production and distribution costs, but marketing costs as well. As that can typically shave another 10% off of the product price, it looks like the days for are numbered for many of these brands. I wonder if ABC(c) knew when it introduced its now-classic Why Pay More campaign in the late 80’s (in Canada) that it was the beginning of the end. Less than 20 years later, it would be dumped by Colgate-Palmolive to Phoenix Brands where it continued its slide into brand obscurity.

Any differing opinions?