Although production and materials planning can be overlooked in its importance in most companies if going smoothly, it is cornerstone to success. Unfortunately, when not going smoothly, it can bring a company to its knees. For example, production might not know what to run, changeovers can be out of control, customers become unhappy, materials shortages persist, resources are scrambling to catch up with changing conditions, and chaos ensues. Read more about this topic in our article, The Million Dollar Planner.

An Industrial Equipment Manufacturer Case Study

An industrial equipment manufacturer struggled to keep up with month end sales goals when receiving last minute notice from Engineering of final design of the engineer-to-order item (bills of materials) before the item was scheduled to ship to meet customer requested dates. There were multiple stages to the manufacturing process (fabrication, weld, paint, final assembly), and parts had to be shipped offsite for process steps and married up along the way at the “right” time to make the orders come together.

The bottleneck and pacing item was the machine shop, yet visibility was limited to seeing which parts had to complete production at the same time, and the production schedule was completely manual based upon paperwork on hand since there was a lack of visibility in the system. The production supervisor would go through the work order packets, pick out manufacturing differentiators (size, material type, etc.) and group the packets in piles by the optimal run sequencing. For example, you run different sizes on different machines, and you would sequence by material type to be most efficient with changeovers.

Although the machine shop pulled out the stops on a regular basis to meet sales goals, it required constant expediting and coordination of process steps, was sub-optimal based upon the work order packets available at the time, and the process was completely dependent on a person (who also turned into a single point-of-failure). Since there was a lack of visibility, sales order availability frequently moved from month-to-month, creating concerns with predictability. And the machine shop ran less efficiently than it would have if there was visibility to the full scope of work order packets.

As we provided consulting support to this client, we learned about the optimal sequencing triggers (size, material type, etc.) and looked for ways to identify these triggers sooner in the process. Of course, it is never as easy as it appears. Thus, we had to work upfront in the sales quoting process to get a better picture of the demand plan by adding configuration strings (high-level identification of the item) into the process and system early in the process. By adding this information into sales orders, the team had better visibility to what was coming down the pike prior to Engineering’s final design so that we could gain visibility to plan capacity and materials (master scheduling) instead of reacting to sales orders late in their life cycle. We integrated this visibility into a SIOP (Sales Inventory Operations Planning) process to build a monthly cadence and review of critical sales and operational forecasts.

To address the machine shop scheduling, additional triggers had to be identified and incorporated into the data. Sales order statuses were also key to the process as sales orders went through engineering, production engineering, customer approval, material availability, and work order creation before the items were available to be scheduled. We built these statuses into a planning report along with key triggers and dates (incorporated from a production status review process). Once this report was built, a dashboard was developed for improved visibility and ease of use. This powered the production scheduling process and replaced the packets process so that the system automated the 80/20 and focused attention on what was meaningful to optimize the production schedule and ensure the parts married up at the right time.

Master Scheduling & Production Planning Results

As the client gained visibility to required capacity and materials, they were able to start making directionally correct decisions early in the process with the master scheduling process. As capacity bottlenecks arose, they were able to address proactively before “running into a wall”. For example, we gained visibility that paint was a future bottleneck, and so the head of Operations was able to put together the appropriate capital requests, gain approval, and order an additional paint system to support sales growth goals. Additionally, offload capacity was needed to supplement the weld area, and so leadership was able to pursue additional options prior to negatively impacting customers.

From a materials standpoint, Purchasing was able to look into the future and secure materials ordered from the Russia-Ukraine region while they were still available. While every client struggled to maintain service levels during COVID, our client was able to keep one step ahead and sustain higher levels of service for customers.

As the production scheduling process was upgraded, our client gained visibility to the machine shop and could optimize efficiencies and gain capacity. The head of Operations said he was able to double capacity to support sales growth. The production schedule was no longer dependent on a person; it became part of a process. Thus, this key resource could focus attention on further optimizing machine shop performance.

The Bottom Line

Pay attention to your planning processes as they will drive bottom line business results. Changing from reactive to proactive sounds far easier than it is when you get down to the details, but rolling out the appropriate process, data, and ERP system upgrades will propel progress. If you are interested in talking about implementing a master planning and production scheduling process upgrade to improve visibility and results, contact us.

Did you like this article?  Continue reading on this topic:
Production Planning Best Practices to Recover Capacity

The post Master Scheduling & Production Planning Case Study: Gaining Visibility for Results appeared first on LMA-Consulting Group, a supply chain consulting firm.

Lisa Anderson was quoted in a SelectHub article recently on the best production planning software for the manufacturing industry in 2023. She says a wishlist of key features for your facility is key.

###

Best Production Planning Software

Production planning software is a manufacturing solution that helps you plan for and supervise essential workflows in the production process.

Our analysts compiled a detailed list of the best production planning software with the top benefits, features and limitations. We’ll also discuss top benefits, must-have features and the best way to choose the right manufacturing planning software for your business.

Key Features

When you shop for new solutions, you must have a wishlist of features needed for your facility.

Lisa Anderson, founder and president of LMA Consulting Group Inc., discussed sequencing similar items during production as an essential capability.

“If you think about it in terms of colors or flavors, you would want to run all the dark flavors together. You would want to not run them before you go to a light flavor. So basically, the ability to tie together like items in a production run, and know how much time you’ll need for that category of items.”

Anderson also elaborated on the importance of what-if scenario planning.

“You want to be able to see, ‘Well, what if I have a second shift? How can I rearrange my production plan? Can I find a more efficient way to do it where I can minimize waste or maximize efficiencies? What if I have this situation or that situation?’”

Here’s a helpful list of the best production planning software features to consider when browsing vendors and resellers.

To read the full article, click here.

The post Best Production Planning Software – SelectHub appeared first on LMA-Consulting Group, a supply chain consulting firm.

CLAREMONT, CALIFORNIA – November 20, 2023 –  In a business landscape characterized by unprecedented business volatility, maintaining stellar customer service emerges as a critical differentiator for companies navigating the ebbs and flows of the current market. Manufacturing and Supply Chain Consultant Lisa Anderson, MBA, CSCP, CLTD and President of LMA Consulting Group Inc., highlights the pivotal role of backlog management in elevating customer service levels, especially significant in a landscape where 88% of buyers, according to Salesforce, deem experience as crucial as the product or service being offered. LMA Consulting Group specializes in supporting manufacturers and distributors in strategic planning and comprehensive supply chain transformation, focusing on enhancing the customer experience and robust business growth.

The decline in customer service, a nearly 20% drop according to Forrester, coupled with diminished customer patience, has spotlighted opportunities for companies to prioritize superior service. This is where proactive backlog management plays a vital role, ensuring high service levels, on-time-in-full (OTIF) delivery, short lead times and preemptive communication.

Backlog management can encompass a myriad of statuses and potential scenarios during order fulfillment, ranging from inventory shortages to waiting on customer approvals, purchase receipts, production engineering, international shipping paperwork or even dealing with credit holds and quality controls. “One of the secrets to success in enhancing service levels lies in implementing a proactive backlog management process. Transitioning from reactive to proactive stances can swiftly elevate customer service levels. We have seen it with a building products manufacturer where service levels increased from 38% to 90% by adopting a forward-looking view and assigning orders with tight timelines to specific people or departments to ensure on time fulfillment. We had an aerospace manufacturer elevate service levels from the low 60%s to the low 90%s by implementing a backlog process that tracked progress through multiple steps of the manufacturing process, adding capacity where needed, and introducing advanced technology solutions. It can be done and it delivers results.” states Ms. Anderson.

For deeper insights into navigating the complex landscape of global supply chains, download Ms. Anderson’s special report The Road Ahead: Business, Supply Chain & The World Order and her eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation.  Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by arketi group, a Top 16 ERP Expert to Follow by Washington-Frank, in the Top 10 Women in Supply Chain by Warner PR, in the top 55 Supply Chain & Logistics Experts by flexport, and a woman leader in Supply Chain by RateLinx.  Her primer, I’ve Been Thinking, provides strategies for creating bold customer promises and profits. An expert on the SIOP process (Sales, Inventory Operations Planning), advancing innovation, and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, Bloomberg, Fox News and The Wall Street Journal. For information, sign up for her Profit Through People® Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.                 
                                                                                                      ###
Media Contact Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com

The post Lisa Anderson, Manufacturing & Supply Chain Expert Highlights Proactive Backlog Management as a Keystone for Elevating Customer Service in Manufacturing appeared first on LMA-Consulting Group, a supply chain consulting firm.

Why Is Inventory Accuracy Foundational to Success?

Inventory accuracy is foundational to success. Most clients aren’t concerned about inventory, and they shouldn’t be if they can count on what their system says. However, in every case, inventory must be maintained to ensure your foundation is strong and will support customer service, revenue growth, operational efficiency, and cash flow goals. It is also foundational for maintaining financial records and a foundational requirement for Sarbanes Oxley.

For example, a security products manufacturing client called with concerns about decreasing profits. They were concerned that they couldn’t predict their costs and therefore their profit, and they thought it related to their use of the system. After performing an assessment of their people, processes and systems, it was clear that putting costs in their system didn’t make sense until they had a solid foundation to build upon. Inventory accuracy was one of those foundational elements that had to get in place before advanced layers of process and system capabilities were added. Fast-forward four months, and their inventory accuracy was intact, base product data was available, and they had gained control of their business and were better able to predict performance – and could advance from there.

Essential Inventory Accuracy Basics

Inventory accuracy boils down to a few simple concepts including:

• Process disciplines: The 80/20 of inventory accuracy success requires process disciplines to be implemented throughout your company. The tricky part of this equation is explaining the importance, establishing the connection points between processes, marrying the processes with the systems, and ensuring priorities are in place to complete processes and system transactions on a timely basis, in the correct sequence, and with the appropriate controls in place. Process disciplines cover from receiving and production to transfers (intercompany and intracompany) and shipments. In essence, any transaction that impacts inventory must be included.
• Use of the system: If process disciplines are intact, the only other root cause we’ve seen over a combined 100 years of manufacturing and distribution experience is the use of the system. Not all scenarios are created equal. For example, in several situations, intracompany transfers were an issue from an inventory standpoint. In a consumer products manufacturer, their system didn’t allow for tracking intransit properly, and so their inventory “disappeared” while intransit. In a building and construction products manufacturer, their system was highly capable, but the long-term processes didn’t account for transfers properly. Again, the result was “invisible” inventory.
• Root cause analysis: It is common to have inventory inaccuracies. No client has 100% inventory accuracy over the course of a year as perfection is cost prohibitive. On the other hand, many clients can maintain reasonable inventory accuracy with process disciplines and cycle counting. This suffices whereas only the best (around 20-30%) have substantial root cause analysis built into the culture and routines. If reasonable “works”, why strive for the best? They have fewer high skilled resources tied up in maintaining the foundation. Instead, these key resources are focused on profitable growth and advancing the business.

With these three essential inventory accuracy basics, a strong foundation is intact.

Maintaining Inventory Accuracy with Cycle Counting

The key to maintaining inventory accuracy is cycle counting. In essence, it is counting a subsection of your inventory on a daily basis to confirm your inventory accuracy foundation remains intact. Although there are many strategy options, common sense rules the day. ABC cycle counting means you count the material items (in terms of value, volume and/or customer impact) more frequently (that usually account for 20% of your items that equal 80% of your value) while counting the least material items (that usually account for 80% of your items that equal 20% of your value) less frequently. Instead of counting and adjusting, counting and adjusting in a vicious cycle, you focus attention on root cause analysis and resolution. Doing this for the “A” items will positively “B” and “C” items as well since the same process disciplines are required.

How Does a Physical Inventory Fit Into the Picture?

In most situations, once you implement a solid cycle counting process where you cycle through your full inventory at minimum on a yearly basis, you can provide evidence to Finance Auditors that your inventory will be “better” than performing a physical inventory. For example, if the people counting aren’t familiar with the units of measure and products, counting errors increase. Thus, many companies no longer require a full physical inventory. On the other hand, if inventory accuracy metrics start going off-track, it might be time to regroup with a physical inventory and a reimplementation of cycle counting.

The Bottom Line

You don’t want to be sitting happily and unwittingly in a house of cards. Thus, don’t have your house sit on a faulty foundation. Prioritize the appropriate resources to set up solid inventory accuracy processes and tracking mechanisms. If you aren’t in front of inventory variances and root causes, consider bringing on a supply chain consultant. You won’t need significant expertise long term for inventory accuracy alone, and so a short-term expert might fit that bill. Once intact, provide training and education, and make sure a regular review of metrics with Executives is a part of the process. It can be incorporated into the metrics slides of a SIOP (Sales Inventory Operations Planning), also known as S&OP, process to get a regular cadence with Executives.

Please contact us with your stories, issues, and ideas on inventory accuracy and cycle counting. And, please keep us in the loop of your situation and how we can help your organization upgrade your inventory accuracy processes to support profitable growth in addition to satisfying compliance objectives.

P.S. To get ahead of the curve on where to focus for the best results to build on your foundation to get ahead of the competition, download our complimentary report, and The Road Ahead: Business, Supply Chain & the World Order.

The post Why Is Inventory Accuracy Foundational to Success? appeared first on LMA-Consulting Group, a supply chain consulting firm.

Does Production Scheduling Matter?

The best companies focus on production scheduling. Even though Production Schedulers aren’t typically highly paid positions, the function will make or break your ability to serve customers, improve operational performance and accelerate cash flow. Thus, it should be a key priority if you want to achieve profitable growth.

Are There Best Practices for Production Scheduling?

Yes, there are best practice concepts for production planning and production scheduling. No matter the client, industry, and people, these concepts “work”. On the other hand, each situation is unique, and so the key to success is to tailor to the different set of circumstances and priorities at each client. For example, there are different people, processes, ERP systems, data sets, customer requirements, and more. The best way to determine your best path forward is to relate to different examples and determine which tools and skills best apply to your situation.

Client Example: Succeeding in Process Manufacturing with Production Scheduling

In an absorbent healthcare products manufacturing company, product started as materials at one end of the production line, was converted into an absorbent healthcare product and was packaged at the end of the line. All things considered, it was a simple process with one step. And, so why was production scheduling important? Depending on the production schedule, downtime, waste, and inefficiencies increased – or decreased. To increase output, better serve customers, and reduce stock levels (of both raw materials and finished goods), we had to schedule the fewest significant changeovers, sequence items in the most efficient order, and ensure the appropriate resources and support were available at key junctures. This optimized production, but didn’t address customer orders. Thus, we also had to balance operational needs with the appropriate inventory levels and sequencing of customer orders to meet customer needs while also optimizing production. After rolling out best practice production scheduling practices, we won awards from customers, improved operational performance, and reduced inventory levels, freeing up cash flow to invest elsewhere.

Client Example: Succeeding in Job Shop Manufacturing with Production Scheduling

In an industrial manufacturing company of storage solutions, there were multiple steps in the production process from fabrication to weld to paint and assembly. Although it sounds obvious, you need to have product available from the step prior before you can start the next step; however, in these types of companies, marrying up parts that go together in the next step operation is often an issue. There is no point in having 1 piece ready if you need all parts for the next operation. Thus, production scheduling must focus on clarifying the customer requirements and backwards scheduling the operational steps. Once you have this base schedule, the key to success often relies on scheduling certain material types together and sizes together. In this client, labor scheduling is also a critical priority to understand which work centers are scheduled to run on which shifts (and days) so that backward scheduling can ensure the correct parts are available at the “right” time. Otherwise, you have too much WIP (work-in-process) inventory and are chasing your tail to keep product flowing. Once a clear schedule was achieved, the fabrication schedule became visible, and production output immediately increased. Next, items could be optimally sequenced to further increase efficiencies and provide visibility to sales of product availability, thereby improving service levels.

Client Example: Succeeding with Kanbans with Production Scheduling

In a building products (piping) manufacturer, there was a combination of process and job shop steps to the production scheduling process. In this situation, we utilized Kanbans to pull product through the operation steps. During the busy season, we’d add Kanban cards and pull product through the process steps quicker. In this situation, the key was to level load the shop and ensure we kept enough resources to support production on a quarterly basis. We developed a high and low number of employees required to support the quarterly volume, and so long as we maintained these employees and/or reliable temporary resources, our Kanban system would meet customer orders in the most efficient way possible. The ERP system was important in supporting the production scheduling process by driving the backend (Kanban sizes, number of cards and barcoding) as well as providing capacity reporting by work cell which translated back to the demand plan. Results followed. They were able to respond more quickly to spikes in demand with higher service levels and were able to minimize costs by level loading production and minimizing spikes/ troughs in operational resources.

What’s In Common No Matter the Consulting Client?

There are a few items in common across the board for every successful production schedule. A few supporting factors that pop to mind include:

• Production scheduler(s): You need a well-rounded resource who is excited about optimizing several conflicting priorities as balancing sales, inventory, and operations is not a good fit for the a person who likes black and white assignments.
• ERP system tools: Whether it is MRP (material requirements planning), advanced planning systems, MPS (master planning), or a report showing orders, inventory, changeover groups, and more, you will need to use your ERP system to create a solid schedule. In 90%+ of our consulting projects, we expand the use of ERP and utilize advanced functionality to improve the process.
• Operational data & information: It is impossible to schedule effectively if you don’t understand your capacity. How many people are required to run certain machines and support different work cells? Do certain products require additional support? Are your people flexible to run multiple machines? Can they go across work areas? How many people do you have in total? How many shifts run which lines? Are support resources in place?
• Customer orders / demand plan: If you don’t know what is needed to ensure high service levels, you cannot schedule effectively.
• Training & education: You will need to prioritize training (how to’s – click here, perform the job in this sequence, etc.) and education (why are you sequencing in this order, what are your order policies and why do they matter).

Don’t fret if these priorities are not in place. In 99% of our clients, they are not in place when we start. Yet most can be quickly put what’s needed in place at least to the degree required to start gaining results. They are not of equal priority in every client. In fact, half the battle is determining what needs to be done in what order, who has the capabilities to jump into scheduling and thrive, how to extract directionally correct data from Operations and your ERP system, etc. What is clear is that if you focus on this priority, your customer service, operational performance and cash flow will thank you!

The post Scheduling Best Practices to Improve Service & Performance appeared first on LMA-Consulting Group, a supply chain consulting firm.

Why Balance Customer Orders, Inventory, & Profitability?

If you want to serve your key customers successfully (with high on-time-in-full (OTIF), short lead times, and proactive service) so that you can take advantage of the opportunities coming down the pike while addressing the hard realities of the current business environment (potential recessions, high interest rates, and less access to capital), you MUST balance sales, operations and inventory.

Otherwise, you will have one or more of the following issues arise:

• Inventory Overload: Too much inventory of the wrong products and WIP (work-in-process) in the wrong place at the wrong time.
• Slow Moving Inventory: Too much slow moving or obsolete inventory
• Production Schedule Disruptions: Not enough of the right inventory in the right place to keep production running smoothly.
• Weak Service: Not high enough service levels to ensure you can maintain and grow your business during turbulent times, let alone meet business plans
• Not Prepared for Growth: Not able to take on significant opportunities coming down the pike. For example, as companies expand manufacturing in North America, customer orders continue to increase down-the-line in the supply chain
• Skyrocketing costs: If you aren’t balanced, you have to spend more to meet customer objectives.
• Inflation cost increases: The only way to offset the massive cost increases related to inflation is to be able to get in front of what’s coming.

Instead of these dire consequences, the smart are proactively balancing customer orders, inventory and profitability.

How Do You Balance Sales, Inventory & Operations?

The good news and bad news is that balancing these factors does not require significant capital investments, the latest technologies like ChatGPT, and a mountain of resources. It simply requires rolling out the appropriate strategy and tactics that is uncommon common sense. Roll out the appropriate strategic processes largely encompassed with Sales Inventory & Operations Planning (SIOP), also known as S&OP, processes. Focus solely on achieving directional progress, and you’ll gain quick wins.

However, strategy alone will not “work”. It has to be accompanied with the appropriate tactics which is the execution of the fundamentals required to support Sales & Operations Execution (S&OE). If you aren’t familiar with S&OE, don’t fret. It is a common term in software circles, but in manufacturing and supply chain circles, it is known as supply chain planning and includes demand planning/ forecasting, supply planning (master scheduling, production planning, material planning, replenishment planning, inventory planning, production & labor scheduling, etc.), operational execution, shipping, receiving, etc.

Client Examples: Using SIOP / S&OP To Balance Sales, Inventory & Operations

The SIOP process is geared to aligning sales with operations, customers with suppliers, and demand with supply.

How SIOP Fueled Growth for a Biotech Manufacturer

For example, a biotech manufacturing client couldn’t meet aggressive sales goals with high enough service levels to ensure customer loyalty and future growth. Sales was frustrated and executives were concerned about how to support future growth goals. On the other hand, Operations didn’t have the information to prepare in advance to meet the service objectives with the aggressive goal goals. They were concerned about spending money until they knew the product wouldn’t go to waste, and management was concerned about hiring manufacturing employees until volumes were confirmed in enough detail to know the work centers and skills required. The bottom line: Sales was out of balance with Operations. Thus, the right inventory was not available in the right place at the right time.

After rolling out SIOP in combination with S&OE (as you cannot have one without the other), we developed a directionally correct sales forecast by geography, product and unit of measure that “added up” to the growth goals (in dollars) in a way that made sense when viewing by customer, product groupings and growth rates. Simultaneously, we focused attention on understanding capacity (production requirements vs. available capacity by key work area and equipment). It quickly became clear that we had to reallocate a few resources to the bottleneck operation, and we gained approval to hire a few people to support the growth plans. Once the bottleneck operation smoothed out, we gained efficiencies in down-the-line operations, and most importantly, customer service improved and customers gained confidence. Sales, Operations and Purchasing also had insights that enabled cost reductions, product rationalization plans, and key pricing decisions. Nice side benefits to the aggressive growth goals!

How SIOP Accelerated Cash Flow & Reduced Debt by Increasing Inventory Turns

In another example, an aerospace manufacturer had turned the company around following the 9/11 downturn and was interested in selling the business. Thus, they wanted to maintain their excellent service levels while maintaining/ improving profitability and reducing unnecessary debt. We had to balance sales with operations and inventory to reduce unnecessary inventory (not required to support service, spikes in sales and predictable disruptions in supply) while focusing on operational performance. Thus, we assigned executive leadership to the topic to emphasize the priority, clarified the sales plans, and focused attention on inventory planning processes (again, the combination of SIOP/ S&OP and S&OE).

In this case, we had to balance profitability/ margins by site with customer orders and inventory plans. We rolled out improved business processes, better utilized the ERP system, provided training and education to the inventory teams, and we aligned the goals of the Site Leaders with corporate objectives and the Inventory Leaders. Inventory levels came down by 30% in key product lines while maintaining/ improving service levels and growing the business. The company was also better positioned for sale and for continuing operations so that no matter which path was chosen, the company was in a healthy, robust position.

Path Forward

SIOP can be an important process in aligning people (within your organization and with your supply chain partners) and processes (demand and supply) to improve service, support growth, reduce debt, accelerate cash flow, and improve profitability. During times of volatility (inflation, recession, stagflation, technological advances, talent shortage), there will be more opportunities for those companies prepared for success. The winners will be separated from the losers and opportunities will abound. SIOP requires focus, but it doesn’t require capital intensive investments. There is no downside to becoming more profitable, having greater access to cash, and better serving customers and preparing for growth.

Refer to our SIOP webpage for more information, our blog (SIOP category) for hundreds of articles, and learn more about SIOP and what’s important for a successful implementation in our new release eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about how to improve profitability, free up cash, and/or improve service, contact us.

Did you like this article?  Continue reading on this topic:
SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth

The post SIOP / S&OP: Balance Customer Orders, Inventory, & Profitability appeared first on LMA-Consulting Group, a supply chain consulting firm.

Silicon Valley Bank’s Failure kicked off panic in the financial markets and banking system. They had too much money tied up in long term bonds paying at low interest rates, and they didn’t have the liquidity to keep up with the depositors requests to take money out of the bank. This bank catered to venture capital backed companies in the tech space, and there were several depositors with more than $250,000 in the bank when it collapsed. Unfortunately, since the FDIC only insures to $250,000, these depositors would lose the rest. The government stepped in to assist. However, the liquidity crisis spread to Signature Bank and several others. What does all this mean and what can companies do about the liquidity crisis?

What Does All This Mean?

We are in a liquidity crisis. The increase in interest rates has increased the cost of capital. It was certainly not the only issue that caused the Silicon Valley Bank crisis as there were the normal gamut of issues when a company goes bankrupt, but it was a key factor and likely the straw that broke the camel’s back.

Interest rates are not going down anytime soon since inflation continues to rage as demand remains robust and supply is limited. Thus, products will cost more, and if you have to borrow money to purchase materials and pay employees until customers pay their invoices, you will pay more (assuming you can get a loan). Thus, proactively managing inventory and cash flow is essential.

Proactive Inventory Management

Every dollar you have in inventory is a dollar of cash flow tied up that cannot be used elsewhere. Inventory serves an important purpose to protect against variability (of both demand and supply). Since we are in volatile times, inventory can make or break success in your ability to service customers. On the other hand, if you have “too much” inventory, you are throwing money out the window, and with the high cost of capital, you might be paying a hefty interest rate for the privilege. Even if you aren’t borrowing the money, you cannot invest the funds in R&D or other ways to add value to the business.

A SIOP (Sales Inventory Operations Planning) process, also known as S&OP, can help you align demand with supply and proactively address inventory. For example, an aerospace client had a significant amount of money tied up in inventory. A certain amount of inventory was important to their success because a wide breadth of product availability was part of their unique differentiator in the marketplace which created a barrier to entry for potential competitors. However, they still had an opportunity to reduce inventory while maintaining/ improving service levels by implementing best practices in planning and inventory management.

In this situation, we aligned all sites on a common goal, highlighted the importance by putting an executive in charge of the initiative, and provided resources including process and ERP upgrade support, training and education programs, incentives, rewards, and recognition. We developed a collaborative demand plan and determined the best way to supply the volume. The sites worked together to determine how to share inventory and maximize profit. In less than a year, we were able to reduce inventory by 30-40% on the core product lines while increasing service levels to customers.

Please keep us in the loop of your situation and how we can help your organization roll out a SIOP process, reduce inventory and free up cash while improving service to customers. Learn more about how to use SIOP to succeed during volatile times in our new eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. Download your complimentary copy.

The post Silicon Valley Bank’s Failure Kicked Off a Liquidity Crisis appeared first on LMA-Consulting Group, a supply chain consulting firm.

Volatility is the New Norm

If there is one thing that is certain in today’s world, it is that volatility and change are the new normal. VUCA (volatility, uncertainty, complexity, ambiguity) is top of mind for every client. For example, clients ask the following questions:

• What will happen next?
• Are we prepared?
• Which are the likeliest risks with the most severe consequences?
• Should we take the appropriate steps to mitigate if we don’t know what the future holds and if our business can withstand the investment?

Unfortunately, there is no playbook. Only the proactive, brave, and resilient will thrive,

How Does Inventory Relate to Volatility?

As it relates to inventory, the entire point of carrying inventory is to cover lead time, mitigate risk, and address volatility. For example, if you purchase from China, you have to cover the manufacturing and transportation lead time (typically 12 weeks minimum). You would want to mitigate risk. Unfortunately, with China, there are many potential risks (Chinese spy balloons, Taiwan-China tensions, Zero-COVID policy shutdowns, lack of natural resource supply (energy, water), shutdowns, transportation challenges in the South China sea, potential weather, strike and other conflicts in its journey to its destination, etc.). And last but not least, inventory covers volatility. If Sales sells different products than predicted, if suppliers extend lead times, or if disruptions occur, inventory allows your customers to be served while you address the volatility.

Thus, executives are perplexed as to what to do about inventory. In fact, they are in a quandary.

• Volatility is high: Since VUCA is at an all-time high, both demand and supply are volatile, and therefore out of alignment. Inventory covers that gap, and so more inventory is required to successfully serve customers. Beyond required inventory to cover volatility, clients have also moved from just-in-time (JIT) to just-in-case. Inventory is piling up! Of course, unfortunately, it is typically the wrong items in the wrong place at the wrong time if demand isn’t aligned with supply via a process like SIOP (Sales Inventory Operations Planning), also known as S&OP.
• Cost is up: The cost of inventory is going up with inflationary pressures. Every client has experienced raw material, component, and ingredient price increases. Additionally, every unit of inventory has to be stored and transported. Logistics costs have increased significantly as well. Even though the cost of the increases are slowing down, if you compare costs to pre-pandemic, they are up substantially. Thus, every unit of inventory costs more.
• Carrying cost: Having “too much” inventory ties up cash unnecessarily. You purchase materials, pay for production, and have storage and material handling costs all prior to getting paid. In addition, if you have to finance inventory, the cost has been skyrocketing with the increase in interest rates. Even if you don’t finance inventory, you are tying up cash that you cannot invest elsewhere. This carrying cost is also adding up to simply cover built in lead time. For example, 12 weeks of inventory is not only tied up unnecessarily but the cost to carry that inventory has gone up substantially with increased interest rates, increased warehouse space cost, etc.
• Inventory accuracy woes: Although a bedrock fundamental, the more inventory you have, the more likely you’ll be to have inventory issues. For example, as warehouses overflow into the aisles, inventory gets lost. As more locations are added, complexity increases (a key element of VUCA) and inventory inaccuracies increase. For example, a client expanded rapidly to meet increasing customer orders. To meet this increased growth, they expanded operations. Resources are limited, thereby creating complications in keeping up with transactions. Also, they moved the stockroom to a different location to accommodate for the expansion, thereby creating further volatility. Additionally, they needed additional materials and components to support production, requiring additional space. They also purchased long-term supply of critical components coming from the Russia-Ukraine region to secure supply, therefore needing additional storage locations. And, to increase production, they had to produce work-in-process when capacity was available, thereby increasing WIP inventory while waiting for parts and capacity to be available to complete the job. Since they are located in a rural area, they had to expand quickly with multiple available buildings/ locations. What I love is the descriptive names for these locations – the barn, the swamp, the subway, and more. Nevertheless, quick expansion with multiple physical locations can be quite the inventory accuracy challenge.

Executives are deciding among conflicting factors – customer service, customer growth, margins, and cash flow. It is not for the faint of heart. The trick is to turn this “or” equation into “and” so that you can achieve a win-win-win.

Go Back to Fundamentals

The great news about inventory is that the fundamentals “work”. As challenging as it is to navigate volatility, the key is to focus on the fundamentals. Best practice processes paired with process disciplines will carry the day. However, that will not be enough. To thrive in today’s business environment, processes will have to be accompanied with the appropriate technologies. For example, barcoding is greatly more efficient than writing on papers and data entry. However, garbage in, garbage out. Focus on process disciplines before you jump to automate a “mess”. And none of this will matter if you do not have the resources to support these practices.

Best Practice Processes

There are several inventory processes required to have the “right” inventory in the “right” place at the “right” time without having “too much” creating financial woes or “not enough” to support customers. Several of relevant fundamental processes include:

• Transaction disciplines: Every inventory movement (receiving, interfacility movements, work order issues, work order completion, operational steps, shipments, interbranch transfers, intercompany transfers, outsourcing operation steps, etc.) requires a best practice process accompanied with the appropriate use of ERP system functionality performed in the correct sequence and in a timely fashion. Most clients overlook the critical importance of these fundamentals. Although theoretically ‘easy’, it requires an orchestrated effort with trained resources who understand the impacts of their work.
• Cycle counting: Cycle counting is more than simply counting and adjusting. The key is to focus on root cause analysis and remain vigilant on process disciplines, cutoff times, and prioritizing what’s most important (ABC counting). The bottom line is that cycle counting will maintain your inventory accuracy so that when you go to produce, distribute, or ship, the inventory is where you expect it to be in the quantity expected. 
• Costing: Cost accountants are often underappreciated. Good ones can be your most valuable asset! When I was VP of Operations, understanding the true cost of inventory was a critical basic. Otherwise, how do you make “good” decisions? It was surprising how challenging it was to get a directionally correct cost for materials (including freight), labor, warehousing, freight, carrying cost, etc. It is important to properly utilize your ERP system to get a reasonable view of costs. Adding variances into the mix can confuse almost everyone in your organization. Stick with common sense. Strangely, cost reduction programs also cause havoc as 80% of clients double count at least some of the cost reduction programs accidentally. Bring on experts that can dig in and help you know where to focus. (Thank you to my mentor on this topic, Marty Ostrow!)
• Planning processes (demand, production, replenishment, materials, VMI, etc.): The best way to ensure the appropriate inventory is in the “right” place at the “right time” in the “right” quantities to support customer requirements while not having “too much” is to roll out best practice planning processes. These processes go hand-in-hand with ERP functionality including CRM, demand planning, MRP, advanced planning and scheduling, DRP, and more.
• SIOP (Sales Inventory Operations Planning), also known as S&OP: Aligning demand and supply is cornerstone to managing inventory. Refer to our eBook, SIOP Creating Predictable Revenue and EBITDA Growth to learn about how SIOP can help your organization and the secrets to implementing a process and cadence to ensure customer success and bottom-line results.
• Inventory metrics: Make sure to track the key metrics relevant to your business. A few of the key ones include inventory turns, days on hand (DOH), inventory variances, and inventory accuracy.

Final Thought

Inventory management is bedrock for any manufacturer, distributor, or retailer. Although solid inventory management is always vital in supporting growth, profitability and cash flow, it takes on even more importance during times of volatility, uncertainty, complexity and ambiguity. Both inventory accuracy and inventory levels will either propel success or become a bottleneck to success. Remember to dedicate key resources to this foundational building block.

Refer to our blog for many articles on inventory management and related concepts. Also, read more about these types of strategies in our eBooks including SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about implementing out best practices for inventory management to drive stability, customer service, growth and profitability, contact us.

Did you like this article?  Continue reading on this topic:
Are You Managing Inventory or Is Inventory Managing You?

The post Inventory Management: Go Back to the Basics for Success During Today’s Volatility appeared first on LMA-Consulting Group, a supply chain consulting firm.

Why Care About Labor Scheduling?

If you are interested in avoiding the non-stop shortages and extended lead times that have plagued us the last few years, you should care about labor scheduling. Almost every disruption we experienced from baby formula to computer chips to the Southwest Airlines fiasco related to the shortage of resources. From a client point-of-view, EVERY single client, even the best of the best and industry leaders, lost revenue due to shortages and extended lead times. One of the ingredients to success is the topic of labor scheduling.

What is Labor Scheduling?

At its simplest, labor scheduling is determining which people (and which skills) you should have at which sites at which work centers at what time (shift) to ensure the right products can be delivered to the right customer at the right time.

In many manufacturing operations, it can seem pretty simple. For example, an industrial manufacturer runs one eight-hour shift across all work centers five days a week. However, even in this simple situation, the question becomes how to handle surges in customer demand or how to occupy your resources when volume drops off. In a distribution environment, the question becomes how many people do you need to pick, pack and ship to meet your carrier schedules and customer pick up requests. In the transportation industry, the appropriate type of truck driver (long haul vs. local) needs to be in the “right” place at the “right” time to deliver customer orders. Even in the service industry, the key is to have the appropriate number of resources in the “right” place at the “right” time to service customers. Long wait times in restaurants illustrate this importance.

Even in these simple situations, labor scheduling will become more complex. For example, in working with clients in a stable environment and consistent demand by work center, you might have the appropriate numbers of people, but not the appropriate numbers of people with the required skill sets. For example, an aerospace manufacturer required a high-skilled machinist to run their 6-Axis CNC machine whereas they required a completely different skillset to run the punch press. Unless they had the appropriate numbers of 6-Axis skills on the appropriate shift, operations stopped.

What is Complex Labor Scheduling?

Take labor scheduling up a notch, and you’ll gain complexity quickly. For example:

• Building products manufacturer: Although they could determine the number of people required to support their sales forecast, they struggled with labor scheduling in their Canadian operations to get the “right” products produced at the “right” time to service customers. The main issue is that they scheduled each production line without looking at the big picture. They did not have enough resources to run all production lines simultaneously, and certain items required extra people to run. Additionally, certain items had to run at the same time as other items so that they would be available for the next operation at the same time. Unless you planned across all machines in combination with labor schedules, service would suffer.
• Consumer products manufacturer: Taking it a step further, if your volume exceeds a five-day schedule, alternate schedules will need to be evaluated. A consumer products manufacturer struggled with service levels due to their inability to scale up to meet the increased demand. Of course, they utilized overtime, but their resources were tired, absenteeism increased, and production was unreliable. They tried adding people and running different shift configurations to increase output but continued to struggle.
• Bottling company: Taking it a step further, if you throw union rules into the mix, complexity deepens. In this case, they had relatively predictable volume on a quarterly basis; however, the volumes changed from quarter to quarter and from line to line based on peak season adjustments. Several, if not all production lines required a 7 day per week schedule. When the forecast became available, it had to be analyzed in comparison to the potential shift configurations (five 8 hour shifts starting on various days of the week, staggered five 8’s, four 10 hour shifts, a hybrid of 5 8’s and 4 10’s, a bridge shift to make sure the lines could run 24 hours a day continuously even during lunches and breaks). And, finally, you had to layer in the union requirements in terms of forced overtime, voluntary overtime, off days, and much more.
• The ports: Taking it a step further yet, the L.A. or Long Beach ports require more than the appropriate number of people at the correct dock at the right time. There are multiple terminals and so you have to plan resources (labor, equipment) to the terminal and dock level. To ensure the equipment is available, you need to plan the appropriate resources to get the appropriate equipment to the right place at the right time. You need to know where the specific containers on the ship are going so that they can be routed appropriately. The gate operators need to be on the same schedule. And the truck drivers need to be at the right terminal at the right time to get the “right” load to transport to the “right” warehouse (or train) to avoid congestion and service customers. At this just begins to explain the complexity.
• Airport scheduling: As we’ve seen with the Southwest Airlines chaos that unfolded over the holidays, if you don’t have the “right” plane in the “right” place at the “right” time with the “right” pilot and flight crew, appropriate ground crews, gate agents, and more, the system will come to a halt.

Maximize the Benefit with Optimized Labor Scheduling

There are many best practices that will optimize your labor schedules. However, there are no formulaic solutions. Instead, they are highly dependent on your unique situation, skill requirements, customer requirements, workforce preferences, and several other factors. With that said, there are a few common themes:

• Flexibility: Building flexibility into your labor schedules is a “must” with today’s constantly changing customer requirements and Amazon-like service expectations.
• Backup plans: Optimize isn’t the same as minimize. To optimize labor schedules, you will need to have “excess” resources and capabilities for critical areas to account for the most likely (and forecastable) issues that arise. For example, a client had a significant number of key resources for the bottleneck operation go to Mexico on vacation during the Christmas season every year. Instead of being surprised every holiday, putting backup plans in place would ease the pain.
• Focus on conflicting goals simultaneously: There needs to be a focus on customer service, cost, and cash flow simultaneously. They will often conflict with one another. For example, if you increase the run size to improve operational efficiencies, you will have excess inventory which might unnecessarily absorb resources and cash. On the other hand, if you focus solely on serving customers, you might change over too frequently or between flavors or sizes that create quality issues and cause the line to break down at night. You’ll not only increase cost with reduced operational efficiency, but you might waste materials and have people idle until expert resources can arrive to resolve the issue.
• Think big picture: Do not plan in isolation. Instead, focus on how each element impacts the rest of your schedules. Look at connections and down-the-line impacts.
• Elevate scheduling beyond the analyst: Production and labor scheduling often falls to entry level or analyst resources. If there are enough complexities, provide supplemental resources (from other departments, consultants, other facilities) and expertise to ensure maximum benefit.

Final Thought

Labor scheduling should not be relegated to whoever is available. Too many clients leave it to supervisors or analysts without the full picture to schedule properly. If you don’t schedule, chaos will follow. Why not reevaluate what you are doing and optimize your labor schedules especially as supply chains continued to evolve and change. Your labor schedules must evolve as well.

Refer to our blog for many articles on planning, inventory and related concepts. Also, read more about these types of strategies in our eBooks, Thriving in 2022: Learning from Supply Chain Chaos and Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to right-size your inventory, contact us.

Did you like this article?  Continue reading on this topic:
Production Scheduling Best Practices Drive Increased Customer Service, Operational Efficiencies and Inventory Turns

The post Labor Scheduling: How to Maximize Operational Effectiveness While Servicing Your Customer appeared first on LMA-Consulting Group, a supply chain consulting firm.

Manufacturing and Supply Chain Expert Lisa Anderson, MBA, CSCP, CLTD, known as the Strongest Link in Your Supply Chain® and President of LMA Consulting Group Inc., sees inventory tightening as supply chains grapple with demand fluctuation, supplier challenges, stagflation and volatility in the economy. LMA Consulting Group works with manufacturers and distributors on strategy and end-to-end supply chain transformation to maximize the customer experience and enable profitable, scalable, dramatic business growth.

“The supply chain has been front and center since the beginning of the pandemic when toilet paper highlighted the importance of a reliable supply chain. Volatility in supply chains has caused chaos in every industry. Now, the emphasis is on inventory. Building inventory was important when supply chains were trying to regain a semblance of order. Yet, in haste to build inventory, sometimes the wrong inventory was increased, the right inventory was in the wrong place, profitability was sacrificed, or all of the above. Whatever the situation, inventory is now a key focus,” Ms. Anderson said.

Organizations are taking a hard look at existing inventory, customer demand and profitability to remedy and balance inventory. “Companies need to reshape their operations and supply chains by right-sizing inventory levels. The trick is to cut inventory without impacting customer service or cutting performance or profitability. Volatility in the economy will be the reality for the foreseeable future. Those who have processes in place to evaluate customer demand, create accurate forecasts, position capacity and plan production to capitalize on opportunities that exist will have a huge advantage,” she said.

Ms. Anderson and her firm use the SIOP process to capitalize on opportunities while maintaining organizational alignment. “Pencils and erasers, excel spreadsheets, and gut instincts no longer work. Manufacturing today is complex. Customers are sophisticated. Their needs and wants change depending on the end user. It is up to manufacturers to anticipate change, plan for it, and be able to change at a moment’s notice. Processes can provide data, consistency and order to the many moving parts in the supply chain,” she concluded. Supply chains are sophisticated and ever-evolving. Ms. Anderson provides supply chain updates through Supply Chain Chats, a series of short videos that address current topics, issues and challenges related to supply chains. 

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation. She focuses on maximizing the customer experience and enabling profitable, scalable, dramatic business growth. Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by arketi group, a Top 50 ERP Influencer by Washington-Frank, one of the most influential in Supply Chain by SAP and a woman leader in Supply Chain by RateLinx. She was recently interviewed on Fox News, in early 2021published a Special Report, Emerging Above & Beyond: 21 Insights from Manufacturing, Supply Chain & Technology Executives, the ebook, Future-Proofing Manufacturing & the Supply Chain Post COVID-19, and her primer, I’ve Been Thinking, strategies for creating bold customer promises and profits. A contributor on topics including a superior customer experience with SIOP, advancing innovation, and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, Bloomberg, and the Wall Street Journal. For information, to sign up for her Profit Through People^TM Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.

Originally published on ExpertClick: November 11, 2022

The post Lisa Anderson, Manufacturing & SIOP Expert Sees Supply Chains Reshaping to Balance Inventories appeared first on LMA-Consulting Group, a supply chain consulting firm.