Inventory Rationalization
                                                 and Right Sizing Strategies
                   ...
Inventory – a crucial factor influencing
         operations performance
                  • inventory plays an important ...
Business Challenges
         Demand Volatility
                  • demand volatility has never been higher and forecast
  ...
Inventory Right Sizing Strategies –
         Key Considerations

         Product Positioning
                  • What is ...
Inventory Right Sizing Strategies –
         Key Considerations
         Product Life Cycle

                 • Prototype ...
Inventory Right Sizing Strategies –
         Key Considerations
         Demand Variation
               How should demand...
Inventory Right Sizing Strategies –
         Key Considerations
         Demand Variation
               …in volatile envi...
Inventory Right Sizing Strategies –
         Key Considerations
               Supply Disruption

                 • must ...
The Role of Lean Manufacturing and
         Just-in-Time Inventory

                 • there is a direct relationship betw...
Evaluating Inventory Strategy Cost and
          Effectiveness
                   • understand the tradeoffs between the e...
Summary
                   • too much inventory or inventory which is poorly positioned can
                     result in...
Download the white paper:
                                                 Inventory Rationalization
                     ...
Inventory Management: Inventory Right Sizing Strategies Key Considerations
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Inventory Management: Inventory Right Sizing Strategies Key Considerations

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Kinaxis | Appropriately rationalizing your company’s inventory management strategies is of vital importance to operations performance. The goal of an appropriate inventory strategy is to ensure that you can maximize your opportunities in the market place with as little inventory as possible. This takes a clear understanding of the various factors that should be considered including product positioning, demand volatility and supply chain disruption risks.

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Inventory Management: Inventory Right Sizing Strategies Key Considerations

  1. 1. Inventory Rationalization and Right Sizing Strategies (a white paper summary) Kerry Zuber director, solutions consulting kzuber@kinaxis.com Copyright © Kinaxis 2009. All rights reserved.
  2. 2. Inventory – a crucial factor influencing operations performance • inventory plays an important role in buffering against demand variations and potentially harmful supply disruptions, but… • the impact of inventory on cash flow can be devastating • the challenge is selecting the appropriate inventory management strategies and clearly understanding the cost and benefit implications to operations performance 2 Copyright © Kinaxis 2009. All rights reserved.
  3. 3. Business Challenges Demand Volatility • demand volatility has never been higher and forecast accuracies of less than 60% are not uncommon • properly positioned inventory plays a vital role in covering the forecast accuracy gap • The bottom line: in most markets, availability trumps even price for comparable items Supply Chain Disruption Risks • with globalization & outsourcing, supply chains are highly distributed and complex; companies have less visibility & control • JIT inventory and Lean reduces inventory & other forms of waste • The net consequence: unparalleled degree of supply chain disruption risk 3 Copyright © Kinaxis 2009. All rights reserved.
  4. 4. Inventory Right Sizing Strategies – Key Considerations Product Positioning • What is the strategic importance of the product to the company’s revenue and margin objectives? • The more important the product, the higher the consideration for using inventory to achieve customer expectations for availability • What is the competitive position of the product? • If a company is clearly the market leader, consumers become more tolerant of product availability lead-time and this permits a strategy where inventory can reside at lower levels 4 Copyright © Kinaxis 2009. All rights reserved.
  5. 5. Inventory Right Sizing Strategies – Key Considerations Product Life Cycle • Prototype phase: obsolescence risk is typically high due to ongoing engineering change: avoid inventory buffers • Launch & ramp: demand volatility often at peak, inventory positions are appropriate to ensure product availability • Steady state or maturity: moderate inventory positions based on strategic importance & market position of product • Decline towards phase out: buffers should be significantly reduced or eliminated 5 Copyright © Kinaxis 2009. All rights reserved
  6. 6. Inventory Right Sizing Strategies – Key Considerations Demand Variation How should demand variation be accounted for in inventory decisions? • Determine: • historical demand variation over the products “response lead-time”: how quickly can a change in supply output be accomplished and maintained • the desired fill rate or service level (the higher the targeted fill rate, the greater the inventory buffer) • the expected delivery lead-time (helps to establish the stage and location where buffer must be maintained) 6 Copyright © Kinaxis 2009. All rights reserved.
  7. 7. Inventory Right Sizing Strategies – Key Considerations Demand Variation …in volatile environments • use of historical statistics can be of little use for new products or in a market that is in disarray due to external factors (recession) • direct collaboration with key customers offers the best hope for ensuring that their expectations for variation are appropriately evaluated • & should variation exceed that expectation, goodwill can more easily be maintained without the loss of customer confidence 7 Copyright © Kinaxis 2009. All rights reserved
  8. 8. Inventory Right Sizing Strategies – Key Considerations Supply Disruption • must take into account everyday events (late supplier deliveries, component quality issues, equipment breakdowns) to catastrophic events (fires, bankruptcy & natural disasters) • popular strategies include safety stocks and dual sourcing • key question: how much buffer inventory is needed to address supply disruption risks 8 Copyright © Kinaxis 2009. All rights reserved
  9. 9. The Role of Lean Manufacturing and Just-in-Time Inventory • there is a direct relationship between the reduction in lead-time to the benefits in flexibility and inventory reduction • with shorter overall lead-times, less inventory is needed to address the same degree of variation But… • the implementation of the lean enterprise should not equate to a “no inventory” strategy 9 Copyright © Kinaxis 2009. All rights reserved
  10. 10. Evaluating Inventory Strategy Cost and Effectiveness • understand the tradeoffs between the effectiveness of inventory strategies and their relative cost and/or risk • i.e. What happens if the objective of achieving a 98% fill rate requires a level of inventory that results in an unacceptable impact on cost and cash flow? • this requires supply chain visibility, modeling and simulation: • model inventory strategy alternatives to determine both their cost and cumulative net effectiveness in addressing a variety of demand scenarios • monitor and alert of shifts in demand or supply which puts the business plan at risk, so the organization has time to eliminate the impact or mitigate it to the greatest extent possible 10 Copyright © Kinaxis 2009. All rights reserved.
  11. 11. Summary • too much inventory or inventory which is poorly positioned can result in impacts on cost and cash flow that can be potentially fatal in the current business climate • the goal: ensure you can maximize your opportunities in the market place with as little inventory as possible • this takes a clear understanding of: • product positioning, • probable degrees of demand volatility, and • appropriate considerations for supply disruption risks • when strategies have been selected, they should be tested and monitored using supply chain visibility and simulation tools that can provide a realistic assessment of their cost and effectiveness 11 Copyright © Kinaxis 2009. All rights reserved.
  12. 12. Download the white paper: Inventory Rationalization and Right Sizing Strategies www.kinaxis.com company /resource center /white papers Copyright © Kinaxis 2009. All rights reserved
  13. 13. Share your comments & ideas on the Kinaxis Blog http://blog.kinaxis.com Copyright © Kinaxis 2009. All rights reserved.

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