One of my favorite Holiday songs growing up was “The 12 Days of Christmas.” There was something about Christmas having 12 days that put me in the holiday spirit. I also couldn’t help but wonder why anyone would give Christmas gifts such as a “partridge in a pear tree,” not just a partridge but one in a pear tree. My question was, “did the person cut the pear tree down with the partridge in it? Or grow a pear tree in the author’s backyard then add the partridge? How did the “true love” person transport all of this? I know…questions, questions, questions.
It never made sense.
My conclusion that I drew is that anything is possible during the holidays. As a child that meant that I could get anything, I put on my Christmas list even if they were unrealistic.
As Supply Chain Solution providers, we often get requests from businesses asking for help with optimizing their inventory. That’s a great goal. And possibly something that every supply chain should strive for. The somewhat “unrealistic” expectation is if one thinks of inventory optimization in a vacuum without considering how excess inventory is directly connected to inefficient processes throughout the supply chain. Often, we employ our prospects and customers to take a more holistic look at their supply chain, as we see that as the true way to create a continuous improvement process for inventory management.
In the spirit of the holiday season, here is our supply chain twist on the 12 days of Christmas – 12 Days of Inventory Optimization. Obviously, these steps, are often not completed in a matter of days, or sometimes even weeks. However, these are steps to be taken into consideration as you go on the journey of optimizing your inventory.
On 1st Day of Inventory Optimization: Perform a Supply chain Synchronization Assessment
Supply chain synchronization: This refers to the level of coordination between different operations from forecasting to manufacturing to order fulfillment, as well as, the effectiveness of the current supply chain planning operations.
Did you know? 42% of companies find it difficult to synchronize end-to-end supply chain processes.
Featured Resource: Supply Chain Management Assessment
On the 2nd Day of Inventory Optimization: Benchmark Your Supply Chain
Supply Chain Benchmarking: The first step to optimizing your inventory is to gauge the status, identify strengths and weaknesses, compare supply chain operations with the best-in-class, and develop an improvement strategy.
Did you know? 42% of companies find it difficult to synchronize end-to-end supply chain processes
Featured Resource: Supply Chain Management Assessment
On the 3rd Day of Inventory Optimization: Assess Your IT Systems
IT assessment: An assessment of the Information Technology (IT) systems currently being used to support operations. A full IT assessment includes identifying gaps, areas of improvements and systems that are working. The next step after these areas are determined, is to suggest methods and solutions that can help in improving overall productivity, efficiency and reduce costs.
Featured Resource: Improving Your Supply Chain Where Do You Start?
On the 4th Day of Inventory Optimization: Develop a Change Management Plan
Change Management: Developing a change management plan for implementing new systems is critical for any successful S&OP process optimization project. Determine who the key players are, how the people involved will receive training on how to use the new systems.
Tip: Select solutions that allow for quick transitions to ensure better user adoption rates.
Featured Resource: Get Your House in Order
On the 5th Day of Inventory Optimization: Create a Better Demand Forecasting Process
Better Demand Forecasting: Naturally demand is the main driver for inventory rates. As a result, creating optimal inventory levels often start with creating a better demand forecasting process. It’s essential to have a demand forecasting system that can generate a baseline statistical forecast. This statistical forecast at the right aggregation level then serves as the basis for a more collaborative demand planning process.
Did You Know? Statistical forecasting generates 20-40% more efficiency
Featured Resource: Which Statistical Forecasting Methods Should I Use?
On the 6th Day of Inventory Optimization: Optimize Your Demand Management Process
Demand Management Optimization: Creating a better demand management process goes together with an improved forecasting process. This involves a collaborative demand planning process for crucial demand information that might not be readily available from existing systems. Finally, measure the performance of the demand management process by tracking metrics that measure demand forecasts and the effectiveness of the overall demand process.
Tip: At a minimum track: mean percentage error, mean absolute percentage error (MAPE), and forecast accuracy stability.
Featured Resource: A Five-Step Approach to Effective Demand Planning Implementation
On the 7th Day of Inventory Optimization: Check Your Inventory Health
Inventory Health: Creating an effective inventory control process is critical for optimal inventory levels. Effective inventory control processes take into account inventory management strategies and policies, as well as overall inventory operation management.
Tip: Setup inventory health categories that track different inventory health metrics including damaged, recall, rework, outdated, obsolete, non-moving etc.
Featured Resource: Creating a Better Inventory Control Process
On the 8th Day of Inventory Optimization: Perform an Inventory Reduction Analysis
Inventory Reduction Analysis: The next stage after setting up an inventory control process is to analyze the data gathered by looking at your inventory parameters. Answer key inventory questions around safety stock, lot size, and production frequencies to determine areas where inventory can be reduced.
Tip: During the inventory analysis process, look at ways that you can reduce inventory while improving service levels using more advanced inventory techniques like multi-echelon inventory optimization.
Featured Resource: Revealing the Mystery of Safety Stock Calculations
On the 9th Day of Inventory Optimization: Select the Right Inventory Optimization Strategy
Single vs. Multi-echelon inventory optimization: For global manufacturing companies, employing a multi-echelon inventory policy is often critical to reducing inventory costs. Unlike with a single-echelon inventory control policy where each warehouse is responsible for stocking their own inventory independent of each other and of the main depot or central distribution center; multi-echelon inventory optimization takes a different approach in which decisions made on how much stock to keep at each warehouse is centrally and interconnectedly determined with the goal of decreasing inventory costs and service levels.
Tip: Look to answer multi-echelon questions:
- How much inventory should we keep and where?
- How can we distribute inventory across the network without sacrificing service levels?
Featured Resource: An Introduction to Multi-echelon Inventory Optimization
On the 10th Day of Inventory Optimization: Identify Your Inventory Metrics
Inventory Health Metrics: A key component of your inventory improvement plan should entail creating a simple way to track inventory metrics. Tracking inventory metrics assists with measuring inventory “health” and provides a basis for continuous improvement processes.
Tip: Examples of key inventory health metrics:
- Cycle time
- Order fill rate
- Service level
- Turnover ratio
- Inventory to sales ratio
- Backorder rate
- Perfect order rate
- Rate of return
- Order status
- Order tracking
- Cost of carrying inventory
On the 11th Day of Inventory Optimization: Setup Alerts and Dashboards for Tracking Metrics
Inventory Alerts and Dashboards: Once you determine the inventory metrics that you’d like to monitor, set up early warning alerts and dashboards to help you identify areas of improvement prior to inventory issues.
Tip: An inventory management system equipped with the right dashboarding and automatic alerting system makes tracking process much simpler.
On the 12th Day of Inventory Optimization: Rinse. Repeat. Create a Continuous Improvement Process.
Continuous Improvement Process: Finally, your inventory optimization plan should include a continuous process review that identifies areas of improvement in your inventory management policies as well as inventory reallocation. This process review can be on a monthly, quarterly, or weekly basis depending on your specific business needs.
Did you know? 1 in 5 companies do not have a formalized S&OP process
Featured Resource: How To Get Started With Improving Your Supply Chain Processes Today!