Inventory management: Software shines light on savings
Inventory management can be a bit of a balancing act. Buyers struggle to stay one step ahead of peaks and valleys in demand with nothing in hand but months-old data and knowledge of historical trends. While there can never be any guarantees, software companies believe their products can better arm buyers with the historical, manufacturing and forecast data they need to anticipate demand and keep their inventory levels right where they need to be.
Inventory-management software's value, of course, hinges on the quality of the inbound data. But with the emphasis on a just-in-time (JIT) inventory model, the key is for companies to be able to use the software to quickly forecast trends so buyers can react in turn.
"We're seeing a lot more focus on JIT, not just leveraging inventory in stock, but also what suppliers have - everything that's available to sell," says Ali Jani, CTO at Everest Software. This applies most to the retail and distribution sector, where the supply chain is demand-driven and inventory is JIT often by necessity. One Everest customer, Austria-based ski manufacturer Fischer Skis U.S., confronted just this issue when it found that it wasn't able to stay on top of demand trends and could not project how best to stock inventory. On top of this, reporting was a slow process, sometimes taking over a month. Once the company integrated Everest with its in-house ERP system, reporting time dropped to two weeks, says Fischer's controller and operations manager David Kuhman.
The ultimate goal for many inventory management programs is to get to real-time - or at least near-real-time - reporting. This concept, combined with "end-to-end" supply chain reporting, means buyers can know exactly where products are in their supply chain, how much they have in stock, and even how much their suppliers can provide. "Procurement is trying to squeeze [the JIT process] with less storage, more quick-turn, low holding times," says Carl Brewer, president of Integrated Warehousing Solutions (IWS), of Downers Grove, Ill. Consumer electronics distributor WYNIT looked to do just that. The company reported highly fluctuating inventory levels and wanted to get them under control.
After a nine-month implementation period, the company used IWS software to take a closer look at demand spikes and what was driving the demand. From there it could more accurately mirror demand in its own supply chain and adjust its buying plans and inventory in real time.
Variables in inventory management
There's an added layer of complexity for inventory management software, especially when it comes to manufacturing. For manufacturers and distributors alike, operating in a JIT environment, there's a pressing need to get a handle on part obsolescence. It's not enough to just know what's in stock and how old it is.
"If you're manufacturing products with PCBs worth $5 to $5,000, you don't want a lot of $5,000 boards left over," says Tom Giovingo, executive vice president of Fidelitone, based in Wauconda, Ill. "However, if you're purchasing 18¢ fuses or washers and you have some pieces extra, they are wasted but the impact is minimal."
Tracking part obsolescence isn't just a standalone program in a purchaser's warehousing suite - it too can tie into forecasting and inventory tracking tools. A buyer should be made aware of any parts becoming obsolete well ahead of time so they don't mistakenly rely on old parts if a sudden spike in demand hits. "If a company continues to do forecasting with no direct link to its inbound ship warehouse, it can be shocked by demand peaks and valleys," says Giovingo.
Glazer's, a distributor of alcoholic beverages, based in Addison, Texas, was having just such a problem when it came to predicting inventory for seasonal demand spikes. On top of the huge variation in yearly demand, the company also had multiple levels of federal and state regulations it had to comply with and track.
"We often carried high levels of safety stocks, which led to capacity constraints and frequent intra-company moves to alternative distribution centers," says Gregg Mitchell, senior vice president of supply chain for Glazer's. Moving around inventory sent transport and administrative costs up prohibitively high and added delays in an already slow-to-respond supply chain. Glazer's decided to implement an inventory management program by East Rutherford, N.J.-based Management Dynamics in order to build responsiveness into their supply chain and reduce safety stocks.
A key move was building visibility into its systems to provide real-time shipping data. Doing so, Glazer's knew exactly where its inventory was and how much was there, which allowed it to reduce safety stock by 20% and drive up on-time distribution to over 80%. "Visibility was eliminating the inter-distribution center transfers and reducing cycle time," says Management Dynamics senior vice president or product management Nathan Pieri. Without a full data set, high visibility into Glazer's supply chain would have been near-impossible, he says.
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