Supply Chain Illustrated

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Chasing the same problems for decades

Have we been chasing the same problems for decades?

Reduce Inventory, they said. And they’re still saying it. We’ve been working on the same things for decades. How is it possible that we are chasing the right things, but not achieving the goal?

Perhaps the reason we are still chasing the same thing is that we’re focused on the thing itself. The KPI (Key Performance Indicator) is an indication of success. It is the result of your key focus. The actions you take result in reduced inventory, so you must focus on that action, not on the KPI itself. Understanding which actions will result in our desired impact is key.

There is a consolidated inventory measure (the KPI). But each individual part is where we win or lose. So, in order to create a process around having the right inventory, you need a way to calculate (by individual part) the expected minimum and maximum on hand balance.

Think about financial investments. Your goal is to raise the total amount of money in your account. And you do that by looking at the individual investments that make up the total. Then you choose to keep, sell, buy more or add new products to your portfolio. Then you watch the total to see how you are doing overall.

Inventory is a leverage point. If you have inventory strategically positioned, then on-time delivery is achievable. If you produce only the items that your customer is buying, then your capacity is properly utilized. In between your strategic inventory leverage points, you can utilize pull or MRP to drive production with precision.

We have only two problems to solve.

One. We must determine the actions that will reduce inventory without negatively impacting another metric. Watching the KPI is not enough. How do we reduce inventory? What actions will achieve the outcome we intend? And the entire team must adopt the process.

Two. We need to understand what information is relevant within each timeframe. For example, forecasts are relevant in the strategic timeframe and schedule adherence is relevant in the operational relevant timeframe. Producing what the customer wants is more important than producing many parts that the customer might not want (agility vs quantity).

Demand Driven MRP is a great place to start. Fundamental changes are required. And understanding what is possible only occurs when you step back and review what really happens when following the historical processes.

Once we realize that some of our actions have unintended consequences and once we agree that we need a repeatable process to determine our ordering frequency, order sizes and target inventory, we find the direction of the solution.

John Melbye, DDMRP Educator, Advisor, Consultant

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