- Inventory is held for various reasons like covering process time, allowing for decoupling of processes, and buffering against uncertainties in demand, supply, delivery, and manufacturing. - There are strategic, tactical, and operational decisions around inventory including what to carry, where to hold it, and how much. - An effective inventory strategy consists of analytics, transparency into current and desired states, and accountability through metrics and reviews. - Inventory should be classified and optimized based on part behavior and importance, balancing costs and service levels.

1. For Internal Use Only – Do Not Distribute
Improving Inventory Performance
22 March 2016 - Governors State University/APICS
Sunil Kulkarni – Senior Associate NorthFind Partners

2. Welcome!

3. Why hold inventory?
• Cover process time
• Allow for uncoupling of processes
• Anticipation/Speculation
• Minimize control costs
• Buffer against uncertainties
-Demand
-Supply
-Delivery
-Manufacturing/Processing

4. • Supply Chain decisions Strategic
- What are potential alternatives to Inventory
- How should the product be designed?
• Deployment decisions Tactical
- What parts/items should be carried as inventory?
- In what form should it be maintained?
- How much of each should be held and where?
• Replenishment decisions Operational
- How often should the inventory status be determined?
- When should a replenishment decision be made?
- How large should the replenishment be?
Three levels of Inventory decisions

5. • Part of a well thought out holistic strategy
• Based on the VoC, economic conditions, market intelligence, and supply
chain complexity
• Consists of solid analytics, robust process, and a culture of
accountability.
• A closed loop execution management operating system
• Balances the investments in inventory with requirements of each part
and customer.
• Best in Class companies outperform others by collaborating on an
inventory plan both internally and externally with their key trading
partners.
An effective inventory strategy is critical for
success

6. Understand part
behavior
► All parts are not created equally
► Parts that have predictable demand patterns versus those with
low level of forecastability require different methods of planning.
Understand
types of
Inventory
► Understand by part and location what form of inventory is
required at each node.
► Understanding the relative importance of the parts.
Ensure
execution
► Develop a link between the inventory plan and execution.
► Balance customer service level with inventory carrying costs.
► Ensure the systems, process and culture support execution and
accountability.
Steps to establishing an inventory strategy

7. • Process and tools for governing the progress and ensuring rapid root
cause analysis.
• Creating transparency to current state and desired future state
• is the first step followed by ongoing ‘drum beat’ for
• Rigorous review of status and root cause analysis for areas where
targets are not being met by the organization
- Sales and Operations Planning (S&OP) process framework.
• Clear roles and ownership
• Quick response to disruptions.
• Platforms that enable analytics and optimization of inventory.
Elements of a management operating
system

8. Financial Categories
-Raw Material
-Work In Process (WIP)
-Semi-Finished goods, Components
All look at added value – they change in accounting categories
Do not look at opportunity costs – or help manage inventories
Functional Categories
-Cycle Stock
-Safety Stock
-Pipeline Stock
 Differ in the way they are used.
Classification of Inventory

9. 40% 50% 60% 70% 80% 90% 100%
SAFETYSTOCK$
SERVICE LEVEL
Safety Stock $ vs. Service Level
P3
P2
P1
Inefficient position: Safety stock inventory levels
are too high and service levels are too low.
Optimal position:
Safety stock and service
levels are optimized
along this curve.
Extremely high service level, but
requires too much inventory.
Balancing safety stock vs. service level

10. • View planned cycle stock, safety stock, average inventory,
turns/year and service level by part class
Example – Analytics driven optimization
North-Find Inventory Calculator

11. • Compare “what-if” simulations to determine your desired
inventory investment and service levels
• Change “A2” and “A3” service levels to 98%
• Notice change in average inventory required
Example..
North-Find Inventory Calculator

12. BIC Profile
 BIC companies exceed 95% accuracy on inbound and outbound
orders while reducing total landed cost and out of stock frequency
 83% are more likely to segment the demand forecast based on key
product-customer characteristics.
 67% are more likely to provide accurate views of inventory and
ensure that “availability to promise” is extended across multi-
echelon inventory whether at stores, DCs, suppliers or partners
Aberdeen Research 2014

13. Metrics that drive accountability
High performing companies measure Inventory at business and functional levels
Current FGI benchmarks indicate 67% or more of companies measure the following:
Inventory Balance
Inventory as measured in dollars, units or lbs.
Inventory Turns
The comparison of dollars of inventory to the cost of goods sold for a specific
period (cost of goods sold / average inventory). It measures how many times a
company sold its average inventory amount during the time period.
Days of Supply
The number of days it will take a company to sell all of its inventory (365 x
(Average Inventory / Cost of Goods Sold).
On-Time Shipments
Percentage of shipments delivered on time to customer order due date.
Inventory Accuracy
A percentage showing the variance between inventory records and actual count.
Order Fill Rates
Percentage of customer orders satisfied from stock at hand
(Benchmark data and categories from Tompkins Finished Goods Supply Chain
Benchmarking, 2013)

14. Summary
Inventory strategy is based on Analytics, Voice of the customer,
economic conditions, market intelligence, innovation
Operational control of inventory
ABC Analysis
A items- careful controls, deliver to schedule (just in time techniques)
B- batching rules for EOQ EBQ to obtain discounts and volume benefits
C- Implement simple policy controls e.g. Use analytics to balance costs v/s sla’s,
change supply strategy (e.g. make to order) based on part behaviour. Minimize internal
variety and maximize external variety!
INVENTORY MANAGEMENT IS NOT A RANDOM SET OF INVENTORY CONTROL TECHNIQUES
IT IS PART OF A WELL THOUGHT OUT STRATEGY OPTIMIZED USING ANALYTICS TO BRING TOGETHER ALL
ASPECTS OF THE SUPPLY CHAIN