Optimize Inventory
Cost reduction and managing risks are two of the top three essential priorities for supply chain managers across the board, perhaps behind only supporting top-line growth. Inventory is one area in which cost reduction and risk management are critical to better financial results.
How much of your company’s working capital is tied up in inventory? What opportunities are you losing out on because you are holding on to unnecessary inventory? That’s the balancing act for supply chain managers operating in an unpredictable world: reducing inventory to the minimal amount needed while keeping fill rates high. It’s easy to keep excess stock on hand to ensure that we can deliver it into the hands of the customer on time, yet this isn’t a productive use of their working capital. Optimizing inventory to hold just the right amount in the right place at the right time reduces costs and drives profitability for companies.
When the supply chain is predictable, it’s easier to optimize inventory. You may use linear methods like the ABC analysis developed decades ago. However, when you have an environment of heightened complexity and uncertainty, it becomes much more difficult. There are myriad challenges associated with today’s supply chain: lack of granular visibility into every facet of the supply chain, goods held in a network of warehouses in different locations, shorter shelf lives for products, frequent production halts because of shortages of raw materials, volatile demands for your product offerings, and many kinds of customers with different expectations. There are also constant disruptions in the journey and unpredictable events that affect the cost and delivery of goods.
How do you optimize inventory with all these variables at play? It takes a continuous aggregation and analysis of data from disparate sources to clarify the supply chain’s complexities. It is a process that can deliver immediate insights to help you make better and faster decisions. With
SAP S/4HANA Cloud ERP,
SAP Business Technology Platform, and
OpsVeda Agility Now platform powered by
AI and machine learning capabilities, companies can gain a dynamic view of their inventory and zero in on trends and patterns.
These solutions help us understand many aspects of inventory like how much of your inventory is about to expire, how much excess inventory you have, what slow-moving products are held in excess and what fast-moving products are facing shortages, the demand for certain products, and the root causes of excess or short inventory.
Here are a few practical strategies, processes, and approaches:
It is an effective strategy that helps address demand uncertainty and enables a responsive supply chain. The main idea of this strategy is to postpone differentiation across the dimensions of product, timing, and location. Delay the point of differentiation in your supply chain as much as possible until it is necessary and cost-effective; ideally, until they receive an order. A couple of new flavors of Postponement Strategy, such as stage-wise buying strategy in Procurement and in-transit allocation strategy for global fulfillment, combined with the use of Container Prioritization and Projection solutions, have helped customers in the automotive, fashion, food, and hi-tech industries.
Adopt dynamic risk and response management
Manufacturing businesses should scrutinize their operations to identify value leaks resulting from operational processes. For example, are missing components or equipment causing consistent problems and resulting in back orders or canceled orders? Are some little-used products and materials coming into the warehouse sitting too long and taking up valuable real estate? Do certain needed items consistently arrive late, and does your team need to use faster shipping methods which then cut into your margins? Are shop floor issues such as resource, labor, or machine availability putting outbound shipments at risk?
Such questions can be answered, and situations addressed through better access to live data feeds and the capability to identify risks and make context-based decisions on the fly. With live data, business managers can make better choices to enable minimal friction execution. They can expect shipping delays and take proactive steps to change schedules or alternative suppliers. Live data is considerably more valuable than reviewing historical information or running reports based on stale information. Manufacturers can use electronic logging devices and cloud-residing technology to monitor real-time shipment. Live data can also improve quality control by having more visibility into inputs and processes used within all departments. And they can ensure that each batch is traceable and can be analyzed. Live data enables manufacturing managers to achieve improved overall equipment effectiveness goals by adopting a proactive approach to the manufacturing supply chain.
Employ automation to scale
Manufacturers need to scale their operations upwards or downwards in response to wildly fluctuating demand, supply, and inflationary cost pressures. Some manage this task better than others. The successful ones use automated processes to eliminate manual actions and extract more productivity from each worker, machine, and work center. Adding automation to the most impactful areas requires a strategic approach.
Automated processes are essential for matching the “new normal” of consumer expectations. Adding automation allows you to reach the scale faster. For manufacturers, it can help fill gaps caused by a shortage of skilled machinists and other workers.
The pandemic exposed the fragility of complex supply chains. Automation paired with improved data management can help manufacturers reduce risks and waste within these systems. And with data intelligence and automation together, managers can provide context-based insights and analyses for senior leadership, which can make broader changes to improve revenue and further streamline the supply chain.
In summary, the ability to harness data better and extract insights from it will cause reduced inventory cost, more productive use of working capital, better customer satisfaction, and increased revenue. Using SAP and OpsVeda’s Inventory Optimization solutions, you’ll gain a granular view of where your stock is being held, its movements, and how it aligns with your demand. As a result, allocating your inventory more efficiently based on the demand and across all the points in the supply chain journey will create efficiencies and better meet the needs of your customers, becoming a virtuous cycle that improves your bottom line in the long run.
