Supply Chain Illustrated

man looking at map

An Exercise in Precision

With today’s technology and tools, you can plan a trip across the US by mapping a route that will allow you to fill up with gas at a point where your tank is very close to empty. That way we minimize time lost during stops for gas and minimize transactions (mimicking two of today’s “cost reduction” efforts). Instead of carrying extra gas with you (just in case) as safety stock, you make sure there are gas stations along the route 10 and 20 miles prior to your planned stop. In other words, your tank should take you 350 miles, but if you encounter variability and you might not make it, you’ve identified alternative points to stop.

Prior to your first stop, you encounter a detour that added a few unexpected miles to your journey. This means you were forced to change your planned stop and use one of your alternative stops.

Because precision is, um, well, precise, you now have a different starting point for your journey’s second leg. Which means all the future plans you made will need changing.

And the next time there is variability you have to account for, the entire rest of your plan is invalid and you must revise again. If you’re traveling by yourself, perhaps you can commit to following your plan precisely. No matter what else you see. We’ll assume nothing goes wrong, like a flat tire or an accident.

If you add a spouse, they may only be 90% committed, but will stop for Best Homemade pies in the USA. Or, world’s largest chocolate chip cookie. (Yes, I’m the spouse in this scenario).

If you add children, the variability potential increases exponentially. If you’ve ever traveled with small children, I think you’ll agree, the plan is less likely to proceed unchanged. And if you insist, the only thing that will surely happen is that you’ll have a “less than pleasant” vacation.

No one would make this kind of travel arrangement. No one. Yet, it eerily resembles how we try to manage our inventory. What if, instead, I focused on agility. I use a computer program to map out the next day’s route from the hotel where I choose to stay each night. So, when I start, I only map out that day’s three stops (assuming three gas tank fills each day). Still trying to maximize my distance per stop for gas, I map a route where my tank is as close to empty as possible when I refill.

Now, if something goes awry during my single day plan, I can adapt within that short time frame, because I haven’t mapped the precise plan any further. This seems like a solution that is very likely to succeed. But how can I change my inventory management strategy to mimic this method?

I need to make sure that I have inventory at strategic locations in my supply chain. And, I need to make sure that I have production capacity in between those strategic locations. Let’s agree that if I have inventory, it’s much easier to produce things. So once I have determined the strategic locations for inventory, I only need to focus on maintaining a level of inventory there. I don’t need to worry about every point in the supply chain. Like the road trip example, I don’t worry about each stop along the entire journey, only until the next hotel stop.

In between those strategic positions of inventory, I have the ability to react and change plans to adapt to any new information that comes along.

So, I flex the strategic buffers of inventory according to the business intelligence and current conditions I encounter. And I adjust my production in between the buffers according to the customer requirements. In this case, the next buffer position, or the customer itself.

This allows a focus on something concrete within a fixed window of time. But also something flexible for your business, because the strategic locations and the window of time will be different for each business, but still an appropriate strategy for each business.

Demand Driven MRP is a solution that makes sense. It’s a way of thinking that follows the outline above. Strategic inventory positioning to ensure inventory availability and to absorb the variability within the supply chain in appropriate windows of time.

Explore this solution by connecting with me. Let’s talk.

John Melbye

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