For those of you who still shut down your facility once or twice a year to review inventory, I have to ask why. With cycle counting, there is no need for such disruption.

The best way to ensure inventory accuracy is to continually count your products – part of your inventory every day and each item several times per year.

It’s no big secret that cycle counting programs are critical for any company that seeks greater efficiency in the supply chain. And even though it may not deliver perfect accuracy, cycle counting does offer a long list of benefits such as reduced operating costs, higher service levels, improved shipping accuracy, and lower inventory levels.

Some other interesting findings from a recent survey-based report on this topic include:

• Top-performing companies are capable of inventory accuracy greater than 99%, while the average company can achieve 98%.
• Nearly half of companies still use a combination of cycle counting and physical inventory.
• Cycle count frequency rises as the priority of parts increases.
• Scheduling cycle counts is generally the job of an inventory control specialist or inventory control manager.

So what cycle counting initiatives has your company undertaken, if any? Do you need better ways to help you move to cycle counting?

Go!Go!Go!

Jim

To learn more about cycle counting: http://www.tompkinsinc.com/publications/reports/cyclecounting/

Other Resources 

Evolution to World-Class Inventory Management

Cycle Counting Achieves Higher Inventory Accuracy

Inventory Management

Photo Credit: emilio labrador

Carry less inventory; make customers happier. It is not that simple, but it is in essence of what many of the most successful companies are doing today. 

While reading the Tompkins Supply Chain Consortium’s new report, Finished Goods Inventory Management: Presenting Growth & Adaptation Through Metrics, it is very interesting to note that customer satisfaction ratings (as measured by order fill rates) were not negatively impacted by reducing inventory levels in finished goods.

Survey data revealed that customer satisfaction had increased for nearly 60% of respondents, remained the same for 33%, and declined for 7%. This is at the same time that finished goods inventory levels experienced a 1-9% decrease between 2010 and 2011.

The survey demographics were wide-reaching, with nearly two-thirds of respondents in the manufacturing industry sector and one-third in the retail/distributor sector.

Some other interesting tidbits from the report:

• Controlling inventory has evolved from being a division-wide function to a corporate-wide function.
• S&OP processes are being used much more effectively than in the past, but results remain mixed.
• More than 73% of respondents view inventory accuracy as an important metric, or really the more interesting point, 27% do not see inventory accuracy as an important metric.
• Nearly half of survey respondents are doing a great job on traditional inventory management practices, but true Demand-Driven Supply Chains are still mostly aspirational.

What links are you seeing between inventory levels and customer satisfaction? Do you expect even further inventory level reductions in the future? If so, I strongly suggest you look into evolving to a true Demand-Driven Supply Chain.

To learn more about Finished Goods Inventory Management: http://www.tompkinsinc.com/publications/reports/finished-goods/ 

To learn more about Demand-Driven Supply Chains:

http://www.tompkinsinc.com/publications/monograph/demand-driven-supply-chain/

Go!Go!Go!

Jim

More Resources

Inventory Management

25 Ways to Lower Inventory Costs

Finished Goods Inventory Levels Fall, While Customer Service Indicators Rise

Finished Goods Inventory Management Report: New Views on an Old Issue 

Photo Credit: mrebert

I have asked Bill Loftis, a supply chain and transportation operations expert who recently joined Tompkins Associates, to talk to us about horizontal collaboration once again. He has conducted a number of development and implementation initiatives for clients involving collaboration for improved distribution and transportation. Take it away, Bill!  

In my last post, “Horizontal Collaboration: It’s Back on the Front Burner,” I explained how collaboration has returned to the forefront for progressive shippers.

Today, I want to discuss a particular solution – collaborative distribution.  This solution is particularly compelling for several reasons. 

First, the focus is on service. The idea is to flow products nearly every day to eliminate stock-outs, for the larger purpose of increasing revenue and improving competitive position.  Operating this product flow in response to the actual market (versus forecasting) can be achieved by demand-driven supply chain processes.

Second, collaborative distribution converts a significant amount of truckload mileage into intermodal, so it has a unique sustainability advantage over conventional solutions. 

This is why I have been pushing the collaborative distribution concept recently and will continue to do so.    

But you might be wondering, how is it possible to flow products daily and also use intermodal service?  Three key concepts create this scenario:

1. Combine volumes of multiple shippers to provide high shipping volumes (collaboration).
2.  Create a separate collaborative network and locate DCs close to the customer (in addition to the conventional dedicated network). 
3.  Regularly, consistently move replenishment products that should flow on the collaborative network informed by demand-driven decisions that reflect the market in real-time  – More erratic product flows should be on a dedicated network.

Inventory & Transportation Challenges

Note what I am describing here is a completely different network. That’s what makes it a different and better strategic solution. Dedicated (single company) networks are the default standard in America today, and when cost-optimized to as few DCs as possible (which everyone in practice does), dedicated networks present tremendous cost versus service challenges in inventory and transportation. 

The inventory challenge is created because the economic order quantity is a full truckload, meaning for most customers, delivery frequencies are weekly or often much longer.  This creates tension between the costs versus service: You can either compromise on cost by shipping LTL, or suffer stock-outs on selected items when waiting for the next truckload consolidation.  Not pretty.

Long haul trucking is the transportation challenge. Service-minded shippers are constantly trying to improve service (retailers demand 98% on-time, but shippers only average 94%). In this fragmented space, there is only so much one can do. 

The reality is, for a large CPG manufacturer to achieve 98%, its rates will increase a few points at a cost increase of millions per year.  So they don’t do it, service is less than desired, and stock-outs persist.  This unpredictable supply base is inherent in long haul trucking and is a defining attribute of a cost-optimized dedicated network, made worse in capacity-constrained or high-fuel markets.      

So how is a collaborative network different?  Begin by envisioning what a collaborative network looks like: with DCs placed close to the customer (within 150 miles).

Given high volumes of co-mingling multiple shippers, the economic order quantity (EOQ) and delivery system changes.  With multiple shippers on the same delivery, a shipper’s EOQ becomes a pallet, rather than a truck.  With daily deliveries within 150 miles, this is no longer a long haul network, it is a dedicated shuttle network, similar to outbound retail transportation where 98%+ on-time is standard.  Collaborative networks eliminate the inventory and transportation constraints of dedicated networks. 

The Real Reason for Collaborative Networks

Imagine ... reducing your economic order quantity from a full truckload to a single pallet, and eliminating long haul trucking from your delivery system.  This can happen with collaborative distribution.  My message today is that collaborative networks are superior because they shed these constraints. 

There is much more to discuss (the intermodal advantage, how costs are reduced, how to implement these ideas), which will come in later posts.  But let’s close on the most compelling point:  with such difficulty, why pursue this? 

My opinion:  It’s about service, increasing competitive advantage, and adding value by increasing sales.  It’s not about cutting another penny, but about driving sales. 

To help make my point, I would encourage you to read Steve Demming’s recent contribution on Forbes.com where he says:  “Half a century ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Now it’s less than 15 years and declining even further.”  He suggests the one reason why this happens: “It’s more difficult to add value than to cut costs.” 

Lasting companies add value.  I suggest that logisticians should aspire to this more difficult but smarter path of creating solutions that increase sales.  I believe this is the way of collaborative networks:  more difficult, yes, but also smarter and better.

Thanks for reading, and let me know your thoughts on this topic.    

It happens every year – the holidays have once again crept up on us and are now right around the corner. For a lot of companies, this means revving up their supply chains for peak season planning in distribution and fulfillment.

This year, retailers are preparing to make the best of the upcoming peak season regardless of the twin threats of economic instability and low consumer confidence.

Did you know that nearly 60% of companies began their inventory build for the 2011 holiday season prior to Labor Day? This is just one of the insights gleaned from the recent Peak Season Trends and Strategies Survey of Tompkins Supply Chain Consortium members.

Nearly 80 retailers, manufacturers, wholesalers/distributors participated.

The consortium asked about the top threats to business success this peak season, and no surprise, they were indentified as economic weakness and low consumer confidence. Although there are no clear forecasts for the season, companies are doing what they can to brace themselves, make a profit and ensure customer satisfaction.
While nearly two-thirds of respondents list the economy as the single biggest threat to seasonal profitability, there has also been much talk among supply chain professionals about holding fewer stock-keeping units (SKUs) this peak season as compared to the last.

This is somewhat of a surprise. You can read more about this issue here in a DC Velocity article.

How did your peak planning go and what challenges are you experiencing? Is your company holding fewer SKUs?

More Resources

Peak Season Strategies and Trends: 2011 Real-Time Survey Report

Ten Proven Ways to Improve Inventory Performance 

Profitable Growth Podcast: Enhancing Management of Inventory

Photo credit: lordash photography

We all know that a key priority for supply chains is to provide customers with what they want when they want it. In fact, it is the sole reason that many companies even exist.

At the same time, companies are striving to keep their working capital low and their customer service high. This is why it is so important to develop an effective approach to inventory management.

As total logistics costs as a percentage of sales are declining, it is a fact that most companies succeed by reducing inventory levels.

Since inventory can be a tricky concept to understand universally, learning how to manage inventory effectively is essential to your supply chain’s growth and success. Believe me, improvements will show in your overall operations.

I’ve listed below the Top 25 Ways to Lower Inventory Costs, and you can check out the full article, written by our inventory guru, Ralph Cox, in Supply Chain Management Review.

1. Base cycle stock on economics
2. Reduce order transaction costs
3. Lower inventory holding costs
4. Base safety stock on customer service
5. Forecast routine demand based on statistics
6. Forecast future one-time events based on past events
7. Think postponement
8. Rationalize SKUs
9. Reduce acquisition lead times
10. Implement joint procurement
11. Minimize purchase minimums
12. Get downstream forecasts and send forecasts upstream
13. Don’t stock it, or if some stocking is required, at least not everywhere
14. Cross-dock customer shipments
15. Extend payment terms
16. Take advantage of price/quantity breaks
17. Transfer instead of purchase
18. Liquidate
19. Use merge in-transit
20. Exploit collaborative Planning and Replenishment ( CPFR)
21. Use vendor-managed inventory (VMI) and vendor stocking programs (VSP)
22. Estimate reserves accurately
23. Maintain accurate inventory balances
24. Implement a Sales and Operations Planning (S&OP) process
25. Measure performance

Ralph also participated in a recent webcast in which he provides a concise overview of how to cut inventory costs.

Post a comment below if you have any thoughts on the Top 25, or we’d like to hear from you if you have any inventory questions that you would like to throw at me or Ralph.

Go!Go!Go!

Jim

 More Resources:

25 Ways to Lower Inventory Costs

10 Proven Ways to Cut Your Inventory Costs

Inventory Management: Minimizing Cycle Stock and Safety Stock for Increased Shareholder Value

Evolution to World-Class Inventory Management

Executive Reporting: Understanding Inventory Performance Over Time

Photo Credit: images_of_money

Inventory Management

Consumer Products

What the world needs is another acronym, right? Normally, I would say no way, but this one – "SIOP" – is a good one because it helps organizations of all types evolve to solve problems quicker and with more foresight.

"Sales, Inventory & Operations Planning" used to be called "S&OP" for "Sales & Operations Planning." But more and more, I am seeing forward-thinking businesses couch their strategies in a broader context that involves world-class inventory management.

Simply defined, SIOP is an integrated business management process through which the executive/leadership teams continually achieve focus, alignment and synchronization among all functions of the organization. We’re learning these days that the smartest companies cross organizational boundaries to solve problems in strategy, planning, managing inventory, sales and manufacturing.

In its most basic form, SIOP was developed to address these types of situations; however, it is impractical to do so at the SKU or transaction level. Accordingly, SIOP provides a structured business process that facilitates addressing problems at the product family or group level ahead of time whenever possible.

To gain greater insight, the Tompkins Supply Chain Consortium recently performed an analysis of the level of communication that takes place between functions to address SIOP issues. Data collected from a recent Consortium survey indicates that more than 80% of participating companies have a formal SIOP process in place, and there is virtually no difference in the use of an SIOP process at retailers or manufacturers.

If you’d like more information on the survey and SIOP, you can download the Executive Briefing, Sales, Inventory & Operations Planning: Crossing Organizational Boundaries.

Is your company doing SIOP, and if so, what have you learned?

More Resources

From the Tompkins Supply Chain Consortium: Inventory Management Tops 'Critical List' for Companies in 2010

 

Lessons from the Benchmarking and Best Practices Leaders, from the The Global Supply Chain Podcast (listen here or see the text transcript)

Photo credit: Tim Brauhn

Have you seen the adaptation happening around you? Just open your eyes and you’ll see it.

The dynamic of inventory management is shifting. Companies are evolving as they adapt to the changing economic and business environment. Those that are embracing the evolution are seeing a competitive advantage; while those that are holding onto the past inventory management practices are falling victim to natural selection.

Inventory reduction was highlighted as an area ripe with supply chain cost reduction opportunities during the recession. And now, as companies begin gaining momentum, it is more important than ever to maintain the right mix of inventory.

However, it’s not just about cost savings; Companies also need to maintain high customer service levels. Really, world-class inventory management involves the organization as a whole.

A new white paper that I recently co-authored with inventory expert and Tompkins Associates’ Principal Ralph Cox delves deeply into this topic. The Evolution to World-Class Inventory Management stresses the cost-effective integration of people, business processes and enabling technologies – all aligned with the firm’s business and operating strategies.

Achieving world-class inventory management is not something you can achieve by resting on your laurels. It requires a three-fold approach:

Inventory Optimization, in which textbook approaches to scientific inventory management are applied;

 

Sales, Inventory & Operations Planning, in which conflicts in priorities are addressed formally and solid, timely decision-making processes are developed; and

 

Supply Chain-Oriented Product Development, in which the product development process is specifically oriented to operations and the supply chain capabilities are leveraged.

And while some level of function exists simultaneously in these areas, within most companies, managing inventory in a world-class manner will proceed sequentially through these areas. At every stage, the twin goals are the same; the difference lies in the breadth of the approach and the range of groups involved.

As most organizations won’t have the inventory to cushion any potential disruptions, it is essential to have the right processes in place to reach world-class inventory management.

Go!Go!Go!

Jim

To learn more, check out our new Evolution to World-Class Inventory Management White Paper.

If you like this blog and are interested in learning more about Supply Chain Information Technology, you’ll want to take a look at Tompkins Associates’ new blog. It is written by a bunch of great guys who really know their SCIT.

You can get to know them better by reading the inaugural post.

The technology leadership team’s expertise extends across the entire supply chain – from global sourcing and inventory management to business case development, as well as selection and implementation of supply chain execution systems and warehouse management systems.

And yes, the blog has a barcode at the top because they are geeks, but I mean that in the nicest possible way. They are the best kind of geeks: those with the knowledge and skills to offer advice that keep company systems running like clockwork and save money at the same time.

Check out the first couple of posts on this newly minted blog and learn more as they introduce themselves, get into a few hot topics and explain how to plan for SCIT needs during the Comeback of the economy.

Visit: http://supply-chain-it.tompkinsinc.com/default.aspx

Go!Go!Go!

Jim

Guest blogger Dan Avila, a partner in Global Supply Chain Services for Tompkins Associates, wrote this post on the pulse of retail at this critical time between the economic situation, retail recovery, and the upcoming holiday buying season. Dan's experience includes a focus on retail, with over 20 years in supply chain and 10 years in consulting. Here are his thoughts on the matter.

-Jim

There’s a special "glow" around the retail industry as we move into the holiday season, and it has nothing to do with Rudolph the Reindeer’s nose.

Almost daily, I read a news article predicting what will happen with retail sales this holiday season. In a recession, it makes sense that a brighter light shines on retail and sales predictions. I have seen some predict a 2% decline and others predict as much as a 4% increase over 2008. Either way you slice it, retail is still in the middle of a downturn with some retail sectors performing better than others.

Discounters continue to perform well and luxury item retailers continue to suffer, with all other sectors somewhere in between. While many sources believe the worst of the downturn is over, consumers are still going to be cautious this holiday season. According to a recent survey from the National Retail Federation, Americans are not ready to declare an end to the recession until unemployment levels subside. So the return of retail is not looking good for this holiday season, but many believe that retail will begin to recover in 2010.

It has been vital for retailers to adapt their operations during the downturn in order to keep their doors open. Two significant changes were necessary. First, they reduced their overhead by eliminating unnecessary positions and costs, and secondly, they reduced their inventories by ordering less and by limiting their selection of products to their customers. Because of these two approaches to reducing retail supply chain costs, retailers are in a much better place from an operations and profitability perspective once customers return to their stores.

So what happens in 2010 when retail rebounds and becomes strong again? Will retailers be poised to take advantage when customers come back through their doors? Will the tough lessons learned in 2008 and 2009 help retailers in the future?

The Great Comeback has begun and each of the areas of our economy will slowly rebound, with retail typically lagging behind the other sectors. I see three key areas which will make or break retailers during the Comeback, two of which we have already discussed – reducing operating costs and reducing inventories. The third is evaluating logistics networks.

1) Cost Reduction: The Great Recession has taught surviving retailers many lessons, one of which is to become lean. By eliminating redundant positions, re-thinking the organization structure, and reducing unnecessary costs, retailers are stronger than they have been in a long time. This must continue when the customers return, or they may find themselves in the same situation when we have another downturn.

2) Reduced Inventories: The lessons learned during the Great Recession will be long lasting. Several retailers did not survive due to their high inventory levels and their inability to adapt with the changes in demand. Moving forward, successful retailers will be agile with their inventories and will be quick to pull the plug on low-selling items.

3) Logistics Networks: Many retail logistics networks have not been evaluated in well over five years, and therefore reflect a completely different economic situation. From the cost of fuel to the cost of labor to offshoring and logistics outsourcing, there have been many changes that can make logistics networks obsolete and ineffective.

While we may not be able to predict the exact end of the recession and the beginning of the recovery, one thing is for certain: For retailers to survive, they must take the lessons learned from the Great Recession and use them to fully recover and prosper during the Great Comeback.

Photo credit: timparkinson

That old saying "All bets are off" seems to apply in more than a few situations these days, especially when it comes to predicting anything with any certainty in business. Due to the recession's effects on most all industries, inventory management is like walking the razor's edge.

Demand is a concept that even the most seasoned supply chain managers must guess at in many circumstances. In part, this is due to consumers' unpredictable purchasing habits and the US government's economic stimulus getting placed into savings accounts instead of being used for purchases as intended.

Inventory costs money to have on hand. As a way of managing those inventory costs, some companies slashed inventory as the recession's impact grew deeper and deeper in the past two quarters of this year and late last year.

For suppliers during this recession, having enough raw material, works in progress, or finished products on hand to fill customer orders has been difficult and potentially costly, especially as demand was tougher than ever to predict. Buyers who purchase inventory from suppliers found that there wasn't enough available to stock their retail shelves.

Sectors that are starting to recover from the recession – such as necessities like pharmaceuticals, food and beverage, and inexpensive consumer electronics – are finding that although customers are coming in the door, their inventories and the inventories of the partners they buy from don't support the demand due to its unpredictability. And often, what consumers are finding is that the shelf is empty when they are ready to buy.

Now as signs are pointing to an economic recovery, I wonder if it's not time for a refresher on inventory management? Every once in a while in this blog, I choose a piece of jargon we use in our lives every day and look at its true meaning, which can get lost from over-use and misuse over time. "Inventory management" is my pick this month.

Examining the meaning of the phrase 'inventory management' might be revealing of the state this economic mess has left some companies' inventories in and what can be done to plan ahead for even more changes that are on the way. We know what the phrase means now, but how is the meaning going to change as the unpredictable markets affect demand planning?

In the immediate past, the recession created a situation where "inventory management" seemed to be spelled "cut, cut, cut." Cutting costs, through the reduction of inventory and other means, was being done across the board without enough forethought.

In the face of the economic downturn, the advice we gave our clients was to maintain talent, maintain business strategy, and cut all other costs. Doing so strengthens the company and helps with recovery, along with growth and prosperity once the recession ends. In terms of inventory cost reduction, we recommended that companies consider selling inventory sooner, holding less of it, owning less of what is being held, reducing inventory holding costs, planning demand more effectively, measuring all progress, and as a final effort, liquidating if needed.

Stocks are running low, and some companies are in a place to increase inventory now. As you plan inventory levels, consider that the question isn't, "When will the economy recover?" Instead, ask, "When will my industry recover?" Certain sectors are set to recover or are recovering now from the recession. Your inventory management techniques will be affected by the bottoming out of your industry. See the table below on when certain sectors will recover:

Inventory management will also be affected by the nature of the post-recession consumer. The consumer today is significantly changed and still uncertain. Reports show that people are putting more money into savings than they have since 1993.

Consumer confidence is still unsteady. Even the markets themselves are worried and distrustful of news of that the economy is rebounding, so you can imagine how the consumer feels. But this is not true of all sectors, as the table above shows, where the buying is already starting and where it’s set to start up in upcoming quarters.

Apply a fresh perspective to inventory management best practices and consider the new forces that will affect it. After all, it’ll be the holidays soon, and the last thing anyone wants then, consumers included, is the dreaded stock-out.

How is your company managing inventory differently these days? What are your plans in the near future?