The Panama Canal has a 40% market share for containers moving goods from Northeast Asia to the U.S. East Coast, and drought conditions are creating a new round of supply chain disruptions. There have been between 130 – 160 ships waiting, leading to supply chain delays. Supply chain risk is extreme in the global supply chain. This is simply the latest issue impacting supply chains.

Due to a lack of rainfall, the Panama Canal has reduced the number of container ships to pass through on a daily basis by 20% (from 40 to 32). Additionally, it has put restrictions on the maximum ship draft to 44 feet (vs. around 50 feet previously). The trip through the Panama Canal takes 8-10 hours. If you have to find an alternate route, it adds 8000 miles.

Luckily, many companies started to diversify their supply chain with the pandemic, and they moved from just-in-time (JIT) to just-in-case inventory, and so disruptions have been muted thus far. However, as time goes on, the supply chain impacts are increasing. Costs are escalating with surcharges of up to $300-500/ container as not uncommon.

Smart Executives Responding with Supply Chain Optimization

Smart, forward-thinking executives are responding with supply chain network optimization and risk mitigation strategies. For example:

• Alternate routes: Forward-thinking executives are finding and using alternate routes. You never know when an issue will arise, and you cannot afford to wait for the crisis to occur to use your backup plan. Thus, smart executives are using alternate routes for at least a minimum percentage of shipments so that they establish their presence. Depending on your beginning and ending point, there might be several alternatives with varying levels of benefit/ cost.
• Alternate modes of transportation: This strategy will certainly cause hefty price increases, and so it is used as a last resort. However, it makes sense to establish these options.
• Reshoring & expanding manufacturing capabilities: Several clients are planning for a resurgence of manufacturing closer to customers and ramping up in the U.S. By virtue of this strategy, shipping lanes will change and diminish.
• Nearshoring/ Friendshoring: Many clients are also searching for manufacturing capabilities closer to customers, not in the U.S. or Europe. For example, MedTech is nearshoring to Mexico, Costa Rica, and the Dominican Republic. it is critical to ensure you find a friendly country to mitigate supply chain risks.
• Forward positioning of WIP inventory: Depending on your products and customer requirements, you could change your manufacturing process to produce and ship work-in-process (WIP) so that it can be turned into multiple products based on customer need and/or it can be stored at a lower cost while mitigating risk. This concept can be called mass customization, configure to order (CTO), assemble to order, and other names. The product can be redesigned to apply this strategy in some situations.
• Distribution network design: Your distribution network can be redesigned to mitigate risk while accounting for customer requirements and cost concerns.
• Right-size inventory levels: Although moving from just-in-time (JIT) to just-in-case isn’t necessarily the best plan for profitable growth and happy customers, reevaluating your replenishment planning strategies can make good sense. By resetting your planning processes, ERP / MRP settings, and kanban strategies, you can store more of the high risk inventory while storing less of unnecessary inventory to achieve a win-win outcome. To learn more about how to right-size inventory, read our recent article.

These are a few options. The key is to reevaluate your supply chain and optimize your supply chain design and network strategy.

Deep Dive into Supply Chain Risk

The Panama Canal might seem like an ideal solution, and there is significant investment going into upgrades over the next few years. However, have you performed a deep dive risk analysis? It turns out that China can control the Panama Canal even though the U.S. built the Panama Canal and gave control to Panama.

According to the Hay-Bunau-Varilla Treaty of 1903, the United States gained a 10-mile wide strip of land for the canal and provided a one-time $10 million payment to Panama in addition to an annual annuity of $250,000. However, in 1978, the President Jimmy Carter and Panamanian dictator Omar Torrijos signed a treaty agreeing to transfer control of the Panama Canal from the United States to Panama at the end of the 20th century. Panama earns around $3 billion in revenue annually.

China in essence ‘owns’ the Panama Canal since Hutchison Ports controls both ends of the Panama Canal with a terminal at each end. If China gets into a war or conflict with the U.S. or Japan (as the top 3 users of the Panama Canal are U.S., Japan, and China), they could cut off access to both ends of the Panama Canal. Which other ports does Hutchison own? If you are concerned about supply chain risk, you better find out.

The Bottom Line

A key part of a SIOP (Sales Inventory Operations Planning) process, also known as S&OP relates to proactively evaluating supply chain risk as part of your supply chain optimization strategies. Learn more about why a SIOP process should be a key part of ensuring the successful execution of your company’s strategy and the best practices for designing and implementing in our book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

These types of disruptions and inflationary pressures will not stop in the current volatile and uncertain global environment. Thus, be proactive and forward-thinking in your supply chain optimization and risk mitigation strategies. At a minimum, perform an assessment of your current state supply chain and begin with the top priorities for improvement. Learn more about LMA’s complimentary supply chain assessment.

Please contact us with your stories, issues, and ideas on how issues like the Panama Canal impact your company and end-to-end supply chain. And, please keep us in the loop of your situation and how we can help your organization with supply chain optimization, risk mitigation and supporting SIOP programs.

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 Panama Canal Drought Accelerating Supply Chain Optimization appeared first on LMA-Consulting Group, a supply chain consulting firm.

Should ERP & Related Supply Chain Technologies Be a Priority?

ERP and related technologies should only be a priority if you want to grow and succeed for decades to come. By utilizing ERP and supply chain technologies, you’ll maximize your efficiency and drive customer satisfaction. If not, it will be the same as if you said you wanted to stick with the horse and buggy instead of leaping into a Ford.

To put this into perspective, according to Deloitte Insights (from 20220), manufacturers’ average IT budget as a percentage of revenue is 2.14%. Of course, it depends on whether you are small or large, but the ballpark remains valid. If focused on ERP (as a modern ERP system is vital to success), a rule of thumb is that you’ll spend 5-7% of revenue (for the full project price and implementation cost). How do these compare with your budgets?

Why Should ERP & Related Technologies be a Priority?

The future will be for those who are innovating and using technological advances. Manufacturers and distributors are navigating a mountain of geopolitical, natural resource and rare earth issues in addition to navigating interest rate impacts and a host of other economic challenges that create negative headwinds on preparing for profitable growth and contributing to key financial indicators. Instead of pushing a boulder uphill, it makes sense to look for new solutions and strategies to solve old issues. One of these strategies is to maximize the power of ERP and related technologies.

Will my ERP System Suffice?

Of course, the answer to whether you should upgrade your ERP system is that “it depends”. Upgrading your ERP system isn’t for the faint of heart. 80% fail to achieve the intended results. Yet having a modern ERP system that supports your needs is absolutely essential to support growth plans.

No matter your situation, you can start immediately by better leveraging your underutilized asset. In almost 20 years of consulting, I’ve yet to find a client that couldn’t better utilize their ERP system to attain bottom line business results. Read our comprehensive article to find out how – The MacGyver Approach: Leveraging Your Underutilized ERP Asset. For example, an aerospace manufacturing client was struggling to provide high service levels to their customers while dramatically reducing their inventory levels with a wide breadth of products to support their growth goals. In addition to process improvements and common goals, a key ingredient to success was leveraging additional ERP functionality to improve their production and inventory planning processes across their production facilities.

However, as customer expectations have increased, supply chains have become increasingly complex, and margins have been squeezed with rising costs, having a modern ERP system is the only viable path forward for sustainable success. How do you know if your ERP system will suffice and whether an upgrade should be a priority? Read our article on find out the answer. If you determine you should modernize your ERP system, check out our guide for selection and implementation success.

What Technologies are Required to Support Success?

Again, of course, the answer is “it depends”. With that said, the answer is NOT that you can afford to sit still. What is absolutely clear is that only manufacturers and distributors that pursue advanced technologies will thrive in today’s volatile and complex age.

There are countless technologies that might be appropriate. No client should pursue all of them. If everything is a priority, nothing is a priority. The key is to review your growth plans and assess your SIOP (Sales Inventory Operations Planning) process results to set your technology priorities. A few of these technologies that pop to mind include:

• Robotics: Almost every client is testing, trialing or using robots. There has been controversy over people vs robots in some circles although manufacturers are flipping that equation to people and robots. Read examples in our article, People vs Robots. It doesn’t make sense in every situation. In fact, one equipment manufacturing client chose not to pursue a specific robot because it didn’t provide a return on investment and slowed down the process after thorough testing. On the other hand, another client continues to add welding robots which automates repetitive tasks.
• Artificial intelligence: Demand planning, also known as sales forecasting, is important for every company, and artificial intelligence can always add value to the forecast yet is especially key for hard to predict patterns such as those in consumer products industries. AI is used in countless manufacturing and supply chain technologies. Check out our recent article on AI, titled “ChatGPT & AI: Good or Bad?“.
• Predictive analytics: Business intelligence, big data, and predictive analytics are proving essential. Every ERP system can provide you with an overwhelming amount of data. The issue is sifting through the data to get meaningful information for decision making. Read our article to get strategies to turn data into insights. Taking that a step further to using your data to predict the future can give you an advantage over your competition.
• E-commerce (B2B and B2C): Consumer expectations continue to increase. After all, who doesn’t expect immediate deliveries from Amazon? What goes on behind the scenes to make that happen isn’t a no brainer. Read our articles on manufacturing opportunities in e-commerce and B2B, B2C & Associated Technology.
• Digital twins: What could be better than simulating your factory, products, your supply chain etc.? Digital twins enable better designs, planning, and much more to contribute to customer success and EBITDA growth.
• Autonomous capabilities: These capabilities are used widely in manufacturing environments to supply or move materials and components; in logistics and distribution environments to move items and in transportation and goods movement to move products.
• And many, many more such as drones, blockchain, additive manufacturing, mixed reality/ metaverse, internet of things (IoT), 5G, etc.

The Bottom Line

Jump into the world of technology. Bring on experts and deep dive into those areas that will provide significant benefits to your business. Minimally, you should test and trial the use of advanced technologies. Perhaps you’ll even combine technologies in a new way or develop a new technology to support your profitable growth.

Did you like this article?  Continue reading on this topic:
Modernize Your ERP System: A Guide for Selection & Implementation Success

The post Leap Forward and Leverage ERP & Supply Chain Technologies 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?

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Inventory As a Top Business Priority

As executives continue to navigate these volatile economic conditions, the focus on inventory management increases. It is especially tough to determine what to do if you don’t know if sales opportunities will dramatically increase as the competition falters and consumers drive demand or if sales will tank as recession fears increase and business optimism falters. Worse yet, even if you can get ahead of the most likely scenarios and build resiliency into your processes, supply chain disruptions continue to abound. Thus, the best and proactive are increasing the focus on inventory management and are prioritizing strategic decisions related to inventory. Likewise, the worst are also prioritizing inventory because they are panicked over cash flow. As you can imagine, inventory expertise is in high demand!

Strategic Inventory Decisions

Let’s start with the best of the best as these are the companies making strategic inventory decisions. The weak will let inventory manage them right out of business. The best of the best companies’ executives are seeing opportunities in the future. They realize the weaker companies are struggling with inflationary pressures, supply chain disruptions, extended lead times, and changing customer requirements. Therefore, they are more likely to upset customers and leave opportunities in their wake, and so they want to be positioned to take advantage of these opportunities without allocating too many resources unnecessarily and ending up with the “wrong” products in the “wrong” place at the “wrong” time.

These companies are utilizing a SIOP process (Sales, Inventory & Operations Planning), also known as S&OP, to better predict potential opportunities and position supply to be ready to take advantage of the best of these opportunities. The SIOP process highlights the appropriate strategic decisions for your situation. Thus, although you’ll need the appropriate talent to know when to pull the trigger, they are supported by a process that provides meaningful direction and surfaces opportunities. Instead of throwing the dart and hitting the exit sign (which has never happened to me:-)), they will at least aim for the outer ring, also called triple.

Practical Examples in Making Strategic Inventory Decisions

For example, a life sciences manufacturer of proteins had a strong pipeline of customer opportunities. Instead of simply focusing on aggressive growth with already existing customers, they were thinking three steps ahead and knew that they could further grow the business in the Asia Pacific regions if they could build the base infrastructure and build to a minimum stock level to support the most likely customers’ immediate needs. Although their success was built on prudent investments and strict operational controls, they decided to take advantage of the opportunity. They brought us in to accelerate progress and rollout a SIOP process to gain insights as to where to focus investment dollars. To support the growth, they had to hire additional manufacturing talent, scale up a new facility, and prioritize an inventory build.

In a completely different scenario, a building products manufacturer had significant increases in demand during the pandemic as building and construction took off. As supply chain disruptions occurred, demand inflated further as companies became concerned about extended lead times and their ability to support customers if they planned for just-in-time deliveries as had previously worked effectively. Thus, they talked with customers, evaluated recent order patterns, and analyzed inventory factors in order to determine where to add inventory (which locations, skus and/or for which customers). They updated their inventory planning systems, trained resources, and took advantage of opportunities as competitors couldn’t supply product. As interest rates started to rise, they knew it would have a dampening effect on their business at some point in the future, and so they rigorously focused on managing inventory levels without slashing production or inventory that would be needed to take advantage of opportunities or enable resiliency. For example, they shut down production lines to bring inventory levels down (so they didn’t incur storage costs for the “wrong” products) but kept the people so that they could spring into action as opportunities arose. Of course, they also planned key projects to automate, reduce scrap, and perform critical maintenance.

Why the Focus is High on Inventory Management

When it comes to inventory management, the weak companies and strong companies are aligned. Inventory management has became a top priority. The strong companies are proactively managing inventory so that they can minimize the amount of inventory tied up throughout their supply chain unnecessarily. In essence, they have the optimal levels of inventory to ensure the successful execution of growth plans, customer service, operational efficiencies, and supply chain effectiveness. On the other hand, the weak companies are focused on reducing inventory to free up cash in order to meet payroll and survive.

Best Practices in Inventory Management: Start with Your Foundation

When thinking about best practices in inventory management, you must start with your foundation. Potential clients call and request training for resources and selection of software to support better inventory management. Unfortunately, these requests are typically the 20% of the 80/20 equation in achieving success. Thus, we change the conversation and suggest an assessment to determine where to focus to pull the 80% lever to accelerate progress and results.

Although every client is different (unique combination of people, skills, processes, systems, and strategic objectives), there are common issues that cause subpar inventory management results:

• Weak process disciplines
• Transactions do not occur on a timely basis
• Inventory inaccuracy
• Lack of visibility of inventory throughout the system
• Lack of focus on demand planning
• Confusion in thinking lean will “work” without fully implementing the appropriate cultural norms, hybrid practices as needed, and executive support when it isn’t easy (ie. month end)
• Confusion over which inventory planning formulas and strategies to utilize
• Thinking they are limited by software
• Lack of a monthly cadence with a SIOP process, also known as S&OP

Although you don’t have to completely resolve these issues to make meaningful progress in upgrading your inventory management processes, it must be a parallel priority to sustain results.

Best Practices in Inventory Management: Upgrade Your Processes

The best of the best achieve industry-leading inventory turns while supporting financial objectives. The good news and the bad news as it relates to inventory management is that strong planning processes accompanied with a SIOP process will deliver results.

Depending on your industry, strategic priorities, company footprint, and overarching objectives, you will emphasize or deemphasize specific planning processes. The best practices will incorporate the following areas:

• Demand planning
• Production Planning
• Capacity Planning
• Replenishment Planning
• Material Planning
• Production Scheduling
• Logistics Planning
• Vendor Managed Inventory
• Order Management/ Customer Service
• SIOP

Refer to our blog for details on these best practices. Before rolling out each of these best practices, perform a quick assessment of your situation from a people, process and systems perspective. This will give you a lay of the land so that you can see your strengths, weaknesses and opportunities and relative importance to achieving results. It will also provide a sequence of priorities to have the greatest impact. Then, the successful will focus on execution.

Refer to our blog for volumes of articles on these topics and read more about these types of strategies in our latest books. If you are interested in talking about how to quickly upgrade your inventory management processes, contact us.

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Getting Ahead of Inflationary and Deflationary Pressures Using S&OP

The post Are You Managing Inventory or Is Inventory Managing You? appeared first on LMA-Consulting Group, a supply chain consulting firm.

Clients and colleagues have demonstrated a heightened interest in inventory reduction recently; however, they are not yet seeing the full value! Certainly with everyone worried about a potential recession in 2020, they are starting to think about not tying as much cash up in wasted inventory but that is not the 100 pound gorilla. The real question is why we are thinking about corporate mandates and full warehouses instead of seeing the big picture that we should reevaluate our supply chain.

Of course, maximizing your customer service (on-time delivery, quicker lead times), margins/ efficiencies and cash flow (inventory reduction) is an important standard best practice. To learn more about how to achieve this win-win-win, read our recent article ” Inventory Management as Fashionable as Automated Intelligence for Distributors” for ACHR News. Yet it could become “rearranging chairs on the titanic” if your supply chain is not set up to deliver maximum performance. So, instead of jumping to erroneous conclusions, take a step back to reevaluate your end-to-end supply chain strategy.

When I was a VP of Operations & Supply Chain for a mid-market manufacturer, our private equity backers and Board of Directors were always asking about labor costs. It didn’t matter that labor costs was our smallest cost element. In fact, material cost was the 800 pound gorilla at around 70% of product cost, followed by freight. If we could double labor cost to reduce materials and freight, it would be a smart decision; however, it was never viewed that way. Thus, if a smart private equity group and executive team can bark up the wrong tree, we all might be speeding down the freeway yet going in the wrong direction.

Typically, labor cost is 8-12% of the total cost of ownership. How does that compare to your materials cost? Unless you are in a labor-intensive industry, perhaps you better take a second look. Next there is freight costs. Not only do freight costs continue to rise but the rules, regulations and delays can be astounding. In a recent California Inland Empire District Export Council (CIEDEC) meeting, the new sulfur emission rules for shipping arose because costs will have to be passed on to importers and exporters. Of course, we don’t have to mention tariffs and global unrest. Now, let’s add inventory carrying cost into the equation. It is a minimum of 6%; however, most experts (and clients) agree that it is truly a minimum of 25% and could be as bad as a 1:1 ratio. Just think about how often your customer changes his mind, all the expediting you have to do to serve customers and the systems and complexity your team has to manage. Is it time to reevaluate?

Let’s not forget that this equation isn’t just an insource or outsource question. There are lots of opportunities. For example, you might want to think about the following questions:

1. Where are your customers?
2. Where are your suppliers?
3. Is there disruptive technology that could impact your cost ratios?
4. How complex is your supply chain? Have you thought about the price of complexity?
5. Do you have a robust ERP system to support customer expectations while achieving profitable growth?
6. Are there supply chain partner programs that could completely change the game?

No matter your situation, it is worth revisiting. Corporate strategies last NO MORE than a year so why are we leaving our supply chain to old rules? Instead, we should be future-proofing our manufacturing and supply chain business. Stay tuned and read more about it If you are interested in discussing a supply chain assessment, please contact us.

The post Forget About Reducing Inventory; Perhaps You Have the Wrong Supply Chain Strategy appeared first on LMA-Consulting Group, a supply chain consulting firm.

According to an Industry Week article on the US 500: Top Manufacturing States, which state is #1 in terms of having the most manufacturing headquarters? California! Certainly, CA is not a manufacturing-friendly state in most places (although there is an initiative to create an advanced manufacturing consortium of excellence in the Inland Empire which is gaining support across the board). Manufacturers account for 10.93% of total output in the state and employ 7.2% of the workforce. Neither of these figures is #1 but the total output of $300 billion with an average of 1.3 million manufacturing employees does! #2 is Texas, followed by Illinois, Ohio and New York. 

One of the reasons manufacturing is bucking the trends so far is that there are a vast number of consumers and companies in California, and in today’s Amazonian environment, rapid, customized deliveries are the norm. Thus, proximity matters. California is larger than all but 6 countries! The powerhouse of manufacturing is Southern CA. Additionally, California and specifically the Inland Empire is #1 in logistics in the U.S. According to research by a University of Redlands professor, logistics is at the center of what’s called an onion structure. It is the lifeline of the economy. Manufacturing co-locates or locates next to the logistics lifeline. Supporting services form the next layer of the onion, followed by all others such as retail, construction, leisure and hospitality. 

What Should We Consider and/or What Impacts Could Arise?

For one, all this talk about “manufacturing being dead and gone to Asia” is obviously an exaggeration. In fact, we are starting to see executives look at reshoring as rapid delivery is of paramount importance. After all, everyone is scrambling to provide one-day delivery to keep up with Amazon, and B2B customers are expecting B2C service as well! Further, we are seeing a SHARP increase in concern over high inventory levels to support these service levels. Some clients are concerned about the cost impact of tariffs and inventory levels and others are just becoming more focused on managing cash so they can better utilize existing resources to launch new products and services, invest in the business and more. 

Since manufacturing is directly correlated to logistics, trusted advisors, and other industries, it is worth paying attention. Start thinking about potential impacts such as the following:

• Will your supply base change or move with the changing times?
• Will capacity be available? Suppliers, transportation partners, manufacturing operations, equipment, skilled resources etc.
• Are you agile so that you can meet changing conditions rapidly and without a significant hit to your customer experience or bottom line?
• Do you have a skills gap?

If there ever was a topic related to the resilient supply chain, this would be it! We have recently upgraded and added content to our resilient supply chain series.

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Lisa Anderson MBA, CSCP, president of LMA Consulting Group, will speak to the American Society of Quality (ASQ) – Palomar Chapter on Wednesday, May 11, 2016 at 5:30 P.M. at the Holiday Inn Carlsbad, in Carlsbad, Calif. about the importance of inventory management. Anderson, a sought-after speaker on supply chain, inventory management, skills gap, ERP, SIOP, and the Amazon Effect and its impact on business operations of manufacturers and distributors, will be presenting “Inventory Accuracy Remains Core to Success” to professionals focused on improving quality.

Anderson is board approved in supply chain strategy, an advisory board member for the Advanced Supply Chain Certification program and was named a top 100 supply chain blogger on SupplyChainOpz. Recognized as the 16^th most influential in supply chain management and sustainability by technology leader SAP’s “Top 46 Resource and Optimizations Influencers (Plus a Few Others),” she frequently discusses how inventory is core to manufacturing success and what she’s found as the optimal processes to achieve bottom line results when looking across companies from small to large and spanning diverse industries such as aerospace, building products and food.

“Managing inventory is both an art and a science as our ultimate goal is to keep our customers’ promises while delivering the maximum profit to the bottom line, accelerating cash flow and dealing with ever-changing variables,” explains Lisa Anderson, President of LMA Consulting Group. “I look forward to sharing my insights and the proprietary processes we’ve developed to help the ASQ attendees keep better control of their inventory.”

Anderson, also known as The Manufacturing Connector^SM, is currently working on a book entitled “The Amazon Effect” detailing a business roadmap to thriving in an ultra-competitive marketplace. A regular content contributor in topics including supply chain, ERP and SIOP, she has been interviewed for articles in publications like Industry Week, tED Magazine and the Wall Street Journal. She actively posts educational blogs three times weekly and has two newsletters, Profit through People^SM and “I’ve Been Thinking.” Register for the ASQ Meeting at their website or cut and paste Register http://asq.org/sections/mini-sites/0708. For information about Lisa Anderson, go to https://www.lma-consultinggroup.com/ or call 909-630-3943.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP

**MEDIA EXPERT: Supply Chain Management, Logistics, ERP, VMI, Social Networks for Business**

Lisa Anderson is a leading expert in selecting & implementing strategic priorities and ranked 16 most influential in supply chain by SAP. Known as ‘The Manufacturing Connector’ Lisa has the unique ability to zero in on the critical strategic priorities and bridge the gap between strategy and execution to achieve dramatically improved service levels, accelerated cash flow and increased profits. With a keen focus on elevating business performance, Lisa is passionate about not only synthesizing strategic priorities that will deliver business results but also in designing an implementation approach that delivers rapid results.

Prior to founding LMA Consulting Group Inc., Lisa was the Vice President of Operations and Supply Chain of PaperPak, Inc. Her twelve-year tenure included transitions and promotions through the company transformation from a $100 million family-owned business, through a merger and acquisition of three businesses into one $350 million dollar global company, followed by a management leveraged buyout in combination with an investment banking group.

A sought-after writer and speaker, Lisa has spoken at the Global Supply Chain & Logistics Summit, the APICS International Conference and as a visiting lecturer at the University of Southern California’s Entrepreneurial Program. Lisa is the author of “Leverage Social Networks to Drive Business Results,” has published hundreds of articles and has been quoted in the media including The Wall Street Journal, ABC News and Industry Week.

Lisa serves as an Advisory Board Member for the Advanced Supply Chain Certification program at California State University Fullerton’s Extended Education, is Board approved in Supply Chain strategy by the Society for Advancement in Consulting, is an APICS Certified Supply Chain Professional (CSCP) and won the APICS Southwest District’s Milt Cook Award in 2011.

With a blend of management, finance and operations, Lisa received her MBA with an emphasis in Finance from California State University Fullerton and her BSBA with an emphasis in Operations Management from the University of North Carolina at Chapel Hill.

She has traveled extensively throughout North America, Central America and Europe, including a summer in Oxford when attending the University of North Carolina. Lisa tries to make as many stops as possible at in New Orleans to enjoy a beignet at the Café de Monde. And, in recognition of her extraordinary tenacity to accomplish goals, her colleagues fondly refer to her as “pit terrier.”

Originally published on PR Newswire on May 10, 2016

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Inventory management remains a timeless and vital topic for success. Every so often, we get away from talking about it on a consistent basis because it seems somewhat humdrum.  But it isn’t!

Earlier this year, I was asked to speak to a group of manufacturing leaders about it because of the ongoing importance.  Then, I was asked to speak to a group of quality experts on the topic as it not only is timeless but it also crosses boundaries.  Next, a peer group of manufacturing leaders asked me to speak on the topic. I didn’t have to be a rocket scientist to realize the importance of inventory to company performance, executives and supply chain leaders.

It started me thinking…..  Banking executives understand the critical importance and frequently refer clients for any number of inventory-related needs:  how to bring inventory levels down to free up cash, how to bring inventory accuracy levels up to safeguard assets and customer service, how to implement the appropriate protocols to maintain compliance and how to improve inventory processes to increase margins.  Executives call about inventory-related topics quite frequently.  Boards make it a priority.  For example, corporate of one of my current clients (a facility of a multi-billion dollar aerospace manufacturing company) has made it a top priority.  Certainly none of these people think it is humdrum!

Are you leaving your inventory processes to an analyst on his/her own?  Shouldn’t you be asking questions and expressing interest in the metrics?  Do you know what’s going on with inventory on a weekly basis?  We’ve been consulting for over 11 years as of last month, and 95%+ of our clients asked for or ended up requesting support to improve some aspect of their inventory.  It does seem to be a no-brainer since it is a great way to make quick progress with and improve service, margins and cash flow

Our marketing colleagues call these sorts of timeless topics “evergreen”.  Think about all the impacts to your business stemming from inventory.  We have no doubt it will spur you to go ask a few questions at a minimum.  As this is one of our strongest areas of expertise and we enjoy seeing the deep impact and benefits to businesses, we have decided to offer a special deal for Profit through People newsletter subscribers – a Rapid Inventory Management Assessment.  If you are interested in getting started, contact us.

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May 25, 2016

I just had a brainstorming session with one of my key clients about the integrated planning process – in essence, how demand and supply match up to ensure customer service (which is #1 for every client in today’s environment), growth, and improved margins and cash flow.  It almost doesn’t matter the reason I come into a client – and the reasons can be wide ranging – there is always opportunity to improve the integrated planning process, get everyone on one page with clarity and sync up demand with supply.  It sounds much easier to do than it is in reality.  Yet it is vital!

Some of the results I’ve seen with this focus include the following:  1) Improved service levels from the low 60%’s to the high 90%’s.  2) Reduced lead times by 30-70%.  3) Reduced inventory levels by 30-60% while maintaining service levels.  4) Improved margins and reduced costs substantially – by millions of dollars, 5-20% and so on.  5) Improved employee engagement – probably the most important of all as happy employees not only ensure happy customers but they also are much more likely to be innovative in growing the business with new products, increasing margins etc.

One tip to implement this week:
The good news is that there is a LOT you can do this week to improve your integrated planning process.  If you are a leader, simply ask questions about this process of the people involved in these areas, customers, suppliers etc.  Listen for common threads.  Undoubtedly, you’ll uncover an opportunity or two, low hanging fruit and the like.

If you are “in” the process, take a step back and think about the inputs and outputs of your process.  Of all the items on your to-do lists and priorities of customers (both internal and external), which inputs really matter – and are NEEDED to gain the right outputs (results)?  Answering this question can be the 80/20 to success.

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