Optimizing the Potential of Inventory Management

Optimizing the Potential of Inventory Management

Many organizations, regardless of industry sector or geographical location, find themselves in a comfort zone when it comes to managing their inventory. A high percentage continue to use Material Requirements Planning (MRP), and some even use spreadsheets for their planning, despite having expensive systems in place. The problem is that MRP was developed at a time when businesses could use static demand forecasts over an extended time period to allow for long production runs. In the modern world, long runs are rare and demand can be highly variable.

Last year, we discussed a new approach to inventory management that still recognizes the value of MRP, while adding new techniques to optimize inventory. If you haven’t considered changing your inventory management practices, or aren’t sure how much the business world has changed in the last few years – here are some findings of a recent report by the Boston Consulting Group (BCG).

  • Turbulence in the business world has become the “new normal,” it happens more frequently, volatility has increased, and it persists longer than in the past.
  • Demand is becoming more unpredictable.

In supply chain management there have been changes, as covered in a report by the Gartner group which indicates that customer service has replaced cost cutting and efficiency as the top priority.

Where do you start, though, when implementing new inventory practices? A good place is to use the recommendations contained in SYSPRO’s free book Thinking about ERP. Understand the real reasons why you need to change – the case of change – which will then help you identify the benefits you will expect from the change. Some of the supply chain practices that the Supply Chain Council provide useful metrics for are:

  • Perfect order fulfillment.
  • Return on working capital.
  • Cash-to-cash cycle time.
  • Order fulfillment cycle time.

In our white paper on inventory optimization we point out how different areas of the business can also benefit from improved inventory management:

  • Sales – higher order fulfillment and on-time delivery; and improved forecast accuracy.
  • Manufacturing – reduced manufacturing downtime; and improved plant efficiency.
  • Management – better, more-informed decisions; and a clearer view of potential future issues and problems.

As the Thinking about ERP book explains, any major business change will involve three dimensions:

  • Systems, processes, and people.

So if you are going to improve your inventory management practices, you need to consider:

  • How you will implement software changes to MRP, by adding additional functionality in Inventory Optimization.
  • What processes will be adapted or introduced, to ensure the software will be used effectively, and have lasting and continuous benefit to the organization.
  • How you will get everyone involved and committed to implement the changes, and make it work in the long-run.

The BCG report points out that businesses need to become more adaptable to deal with the rise in economic and market turbulence. One of the capabilities that enable adaptability is ‘Signal Advantage’ – the ability to read and act on signals of change.

If your current inventory management practices don’t take into account customer demand forecasts, then you risk not getting the right signals.

We have customers already using SYSPRO’s Inventory Optimization award – winning solution. Maybe it’s time to make that change…

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