Inventory Control: Optimize Your Inventory Costs Now
As mentioned in our first blog article in this series, we will cover a variety of topics that supply chain professionals, operations leads and plant managers are faced with on a daily and weekly basis. Inventory control is one of those topics – do I have the correct inventory, at the right time to satisfy the customer (external clients and internal production)?
Optimizing inventory positions can be challenging to balance, and gets especially complicated when you factor in competing requirements from the business — Sales, Finance and Production. The inventory control equation typically plays out like this:
- Sales – wants to have plenty of available inventory so they can respond favorably to all customer order requests to fulfill them.
- Finance – is very concerned about inventory value to ensure we are making the ‘right investment’ with the production and procurement teams. In addition, finance uses their insight to help establish meaningful targets for Production to build towards.
- Production – is tasked with executing the agreed-upon production plan between sales and finance and optimize the production schedule. Due to production batch or lot sizing, creating a balance of the right inventory vs. excess inventory is difficult to manage due to setup costs, economic quantities and run times.
So let’s talk about the new possibilities that exist.
What if you could see your inventory in a graphical presentation, showing the volume of inventory according to meaningful segments? How many SKUs do you have that fall within the following categories?
- Launching (L) – New materials going to market
- Running (R) – Active materials
- Obsolete (O) – Materials with no movement that have been discontinued for one reason or another
- Dying (D) – Materials which still have movement, but very little
- Inactive (I) – Materials still in inventory; however, no longer active
What if you could visualize the quantity and dollar value of those inventory buckets? How much more efficient would your inventory analyst be at ensuring the right products and the right volumes are produced to meet finance’s expectations? Furthermore, production staff would have more factual data to make real-time scheduling decisions about whether making a change to the production schedule is worth the time investment for the specific stock categories.
Providing your supply chain staff with tools that provide a ‘birds eye view’ does assist in decision making. To illustrate, we will provide two examples that may be familiar to your supply chain:
- What if you could see inventory grouped by ABC and XYZ analysis?
- Everyone knows ABC indicators, which typically allow one to classify their materials from most important to least important.
- But what about XYZ analysis, demonstrating variability; in other words, how consistent is the usage / consumption?
When you look at your inventory considering both of those factors, you now have an actionable view of your inventory directly in the system — streamlined in one transaction, useful for any level of the organization. You can now see an AX material, meaning high value and high mover, right through to a CZ material which would indicate a low-valued material that also has low to no movement.
- Would your production line staff turn their production schedule upside down because a CZ material (low value, high variability) order came in?
- Likely not, but without this information handy, sometimes production personnel react questionably due to lack of key inventory information and visibility to these statistics.
- What we see more often is analysis and management of inventory in a non-SAP software tool such as Microsoft Excel.
- The trouble with this model is as soon as it is printed and distributed it is outdated and extremely error-prone.
Inventory visibility becomes more meaningful when you consider that the ABC indicator can be updated automatically within your SAP system based on the material movements and valuation. That’s right — you can update your ABC indicator of your material master or most other fields of the material master automatically if you choose. This feature alone eliminates the need for manual data maintenance and updates in SAP.
NTT DATA Business Solutions recommends Dispo Cockpit Controlling (DCC) inventory control software to its ECC 6.0 and S/4HANA Clients, which puts simplified tools into their hands to effectively manage inventory levels. Simplified tools coupled with meaningful data allows your SAP user community to handle a myriad of inventory and analysis tasks. The key features and functions of the G.I.B DCC module include:
- ABC, XYZ classification based on historical data
- Determine safety stock and reorder points considering customer level of service
- Determine Re-order point
- Recommended Economic Order Quantity
- Update procurement lead time based on actual receipt dates
- Determine inventory targets and monitor progress to assure achievement
- Graphical displays of inventory status
- Simulation of inventory changes to depict potential cost savings
- Simulation of safety stock, lot size, ABC indicator to assess impacts to availability and responsiveness
- Rapid implementation – weeks, not months