Inventory

The role of a supply chain director is to control the movement of material from source to end customer. The remit is simple, but the execution is far from it. The constraining factors on material and information flow across any supply chain make the task challenging and occasionally very near impossible.

Supply chains are exposed to a plethora of variables, from supply decoupling points through to customer service level agreements, and every logistics movement in between. In this article, we discuss 5 objectives that every supply chain director should have on their agenda.

1. Product Portfolio Management

This first objective may come as a surprise to many supply chain directors. However, taking an active role in controlling what products are used and sold by a business is a cornerstone of improved supply chain control.

Almost every company has a product portfolio that conforms to the Pareto principle, where 80% of revenue is generated by 20% of products, or conversely, and more importantly for the supply chain director, 80% of products only generate 20% of the revenue.

This means that there’s always a large number of products the supply chain has to deal with that, effectively, bring limited value to the business. For the supply chain, these products are slow moving and bring obsolescence risk, which in turn ties up working capital, blocks valuable warehouse space, and increases operating costs.

If a company does not have a formalised approach to effective portfolio management, then the supply chain director should step in and create one.

You can read more about creating a Portfolio Management Process in our article dedicated to Product Portfolio Management.

2. Inventory Optimisation

Inventory is required in almost every physical supply chain to protect against ‘decoupling’ points. A decoupling point is where the input rate (supply) and output rate (demand) differ in volume or time.

Despite advances in supply chain collaboration and attempts to synchronise material flow in supply chains, decoupling points, and consequently inventory, remain the norm and the need to manage inventory effectively remains a key objective for every supply chain director.

It is the supply chain director’s responsibility to ensure that the inventory held at every decoupling point in the supply chain is justified and minimised within the constraints of budget and service. Holding inventory ‘just in case’, or adhering to rule of thumb inventory levels i.e. ‘4-weeks supply’ is simply not tenable in any modern supply chain.

The supply chain director must ensure that appropriate algorithms are applied to inventory targets, and systems used for inventory management, to ensure that the working capital cost of inventory is fully optimised.

You can read more about how to approach inventory optimisation and management on our Inventory Optimisation page.

3. Logistics Network Improvement

Businesses change and, more often than not, that change is at a faster pace than the fixed assets within a logistics network can be developed. Assets such as warehouses and vehicle fleets, that were once optimally configured for the demands of the supply chain, can quickly become points of inefficiency as a business evolves and grows.

Over time, logistics networks become fragmented; as territories change, customer ordering patterns fluctuate, sales volumes increase or decrease and as companies invest and divest, the logistics network efficiency is gradually depleted.

Whenever exit opportunities arise, for example, a warehouse lease break or a 3PL contract break, then it is the role of the supply chain director to take the opportunity to review the logistics network and determine if the exit opportunity could leverage savings or service improvements through relocation or consolidation of assets.

Logistics network improvement is a complex process of modelling the business profile against multiple logistics solutions and scenario options. Key questions that need to be answered include how many warehouse facilities are needed, where they should they be located, how big they should be, how the transport network will service them and how the transport fleet profile should be configured.

Read more about logistics network improvement on our page Logistics Network Design.

4. Warehouse Performance

Warehouses, in terms of their storage function, are a supply chain inefficiency – they are there to hold stock that is required due to decoupling points in supply chains where supply and demand are not synchronised.

Warehouses are expensive – leases, business rates, service charges, MHE, labour, and inventory can often represent up to 70% of a supply chain’s total cost. Consequently, it’s critically important for the supply chain director to have a continued focus on how to minimise the costs associated with warehousing whilst maximising throughput and service.

As demand profiles in a business change, the supply chain director should periodically review and improve the configuration, handling equipment and operating processes of the warehouse or warehouses. Minimising movement through optimised layouts along with logical pick, pack, and despatch processes are the key to ensuring cost efficiency.

If you want to understand more about improving warehouse performance and warehouse design in general, then please go to our section on Warehousing.

5. Sales & Operations Planning (S&OP)

S&OP is a process that facilitates a company to develop a mid-to-long-term plan on how it will efficiently balance demand and supply. In addition to this, the process also ensures that all key functions in the business are aligned and working with the same set of numbers in terms of the supply and demand plan.

Whilst S&OP is not solely a supply chain directive – it brings value for most functions of a business – the supply chain has a huge amount to gain from an effective S&OP process.

S&OP allows the supply chain director to configure the supply chain well in advance of changes in demand patterns. It helps minimise ‘knee-jerk’ reactions to fluctuating demand and consequently helps drive down operating cost, complexity, and general ‘noise’ in the supply chain.

The S&OP mid-to-long-term forecast gives the supply chain director time to make a major change – this could be in terms of recruitment, commissioning new MHE, reconfiguration of warehouse facilities, or changes in transport approaches.

Not only does it give time, but it also provides a platform to gain cross-functional consensus on making these changes, thus avoiding the blame game if forecasts don’t come to fruition as expected.

Learn more about the design and deployment of an S&OP process on our Sales & Operations Planning page.