Tomas Wennerstein, Syncron presenation at Spare Parts 2013
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"Differentiated Inventory Management", Tomas Wennerstein – MD, Syncron Inc. presentation at Spare Parts Business Platform 2013. Find out more http://www.sparepartseurope.com/
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Tomas Wennerstein, Syncron presenation at Spare Parts 2013
- 1. Differentiated Inventory Management Tomas Wennerstein – MD, Syncron Inc. Stockholm, 8 January, 2013
- 2. Page 2 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Main Themes of the Presentation •A segmented approach is default within price and campaign management etc., but why not when it comes to Inventory Management? •What dimensions are relevant to segment the inventory management approach on and what are the benefits? •Repairable parts requires a different inventory management process vs. non- repairable
- 3. Page 3 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Differentiation is Applied in Many Areas • Everybody understands the value of Differentiation • Differentiation is embedded in business practice when it comes to: – Marketing – Pricing – Sourcing
- 4. Page 4 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Different Levels of Inventory Differentiation •Basic differentiation CostDemand (Sales lines, VAU, Cost) •Basic Purpose differentiation and Manual overrides. •Advanced differentiation CostDemand •Strategy based differentiation Scope: Inventory Management for After Market parts. Many SKUs in many stocking locations requires dynamic rules that are automatically applied. DO Quality
- 5. Page 5 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Today - What Do Most Companies Do? •Basic “CostDemand” differentiation: –Demand, ABC (VAU), Picks/Calls/Sales, Cost A B C $ 0-100 $ 101-1000 $ 1000- 1 Rule X Rule Y Rule Z 1 Rule V Rule W Rule U 2 Rule XX … … OR 2 Rule VV … … 3 … … … 3 … … … 4 or more … … … 4 or more … … … PICKS VAU PICKS COST
- 6. Page 6 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Today - What Do Most Companies Do? •Basic “CostDemand” differentiation: –Demand, ABC (VAU), Picks/Calls/Sales, Cost •Basic Purpose differentiation and Manual overrides Rule YY Part A Non Critical Items Critical Items A B C A B C 1 Rule X Rule Y Rule Z 1 Rule X Rule Y Rule Z 2 Rule XX … … 2 Rule XX … … 3 … … … 3 … … … 4 or more … … … 4 or more … … … PICKS VAU PICKS VAU Non Critical Items Critical Items A B C A B C 1 Rule X Rule Y Rule Z 1 Rule X Rule Y Rule Z 2 Rule XX … … 2 Rule XX … … 3 … … … 3 … … … 4 or more … … … 4 or more … … … PICKS VAU PICKS VAU
- 7. Page 7 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Advanced CostDemand Differentiation •Get better at managing the ”CostDemand” differentiation –What is the cost for maintaining the same agreed service level for a part that has few sales and high VAU compared to LOW VAU and high sales? Inventory cost / Sales order line A1 A2 B1 B2 C1 C2 1 2 3 4 ? 5-6 7-9 10-19 20 or more ? PICKS VAU
- 8. Page 8 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Advanced CostDemand Differentiation •Get better at managing the ”CostDemand” differentiation –What is the cost for maintaining the same agreed service level for a part that has few sales and high VAU compared to LOW VAU and high sales? Inventory cost / Sales order line A1 A2 B1 B2 C1 C2 1 2 3 4 500-5000 5-6 7-9 10-19 20 or more 1 PICKS VAU
- 9. Page 9 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Advanced CostDemand Differentiation •Get better at managing the ”CostDemand” differentiation –What is the cost for maintaining the same agreed service level for a part that has few sales and high VAU compared to LOW VAU and high sales? •By targeting different Service Level on a more granular level, you will be able to maintain a Total Higher Service Level at a lower cost Inventory cost / Sales order line A1 A2 B1 B2 C1 C2 1 2 3 4 500-5000 5-6 7-9 10-19 20 or more 1 PICKS VAU Target Service per DEMAND/VAU class A1 A2 B1 B2 C1 C2 1 0% 0% 0% 0% 0% 0% 2 0% 0% 0% 0% 0% 0% 3 0% 0% 0% 0% 0% 0% 4 50% 5-6 7-9 10-19 99.7% 20 or more 99.7% 99.7% PICKS VAU
- 10. Page 10 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Advanced CostDemand Differentiation •Challenge the 12 month horizon as a stocking criteria –What says that 12 months is optimal? –In Fast moving Retail no one would use 12 months –Aerospace and similar industries sometimes use 3-4 years
- 11. Page 11 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Advanced CostDemand Differentiation •Challenge the 12 month horizon as a stocking criteria –What says that 12 months is optimal? –In Fast moving Retail no one would use 12 months –Aerospace and similar industries sometimes use 3-4 years Successful results from going from 12 months to 12 and/or 18 months Target Service per DEMAND/VAU class A1 A2 B1 B2 C1 C2 1 0% 0% 0% 0% 0% 0% 2 0% 0% 0% 0% 0% 0% 3 0% 0% 0% 0% 0% 0% 4 5-6 7-9 10-19 99.7% 20 or more 99.7% 99.7% PICKS VAU Target Service per DEMAND/VAU class A1 A2 B1 B2 C1 C2 1 0% 0% 0% 0% 0% 0% 2 0% 0% 0% 0% 0% 0% 3 0% 0% 0% 0% 0% 0% 4 5-6 7-9 10-19 99.7% 20 or more 99.7% 99.7% PICKS VAU Target Service per DEMAND/VAU class A1 A2 B1 B2 C1 C2 1 0% 0% 0% 0% 0% 0% 2 0% 0% 0% 0% 0% 0% 3 0% 0% 0% 0% 0% 0% 4 5-6 7-9 10-19 99.7% 20 or more 99.7% 99.7% PICKS VAU
- 12. Page 12 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Strategic Differentiation •Understand the ROI on different parts as they are stocked in Inventory and adjust your inventory strategy and consequently your Inventory Parameters •Example of groups that could be valid when segmenting you inventory management techniques –Criticality –Captive vs Commercial –Margin contribution –Weather and Climate related –Part Life cycle phase –Unreliable suppliers –Machine Life cycle phase –Machine belonging –Non historical demand driven items vs. demand driven –Planned vs. unplanned –Rotables vs. normal –Short vs. long lead-time
- 13. Page 13 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Strategic Differentiation •Dimensions to consider for the different strategies –Stocked or not stocked –Criteria for stocked or non stocked –Target Service Level –Alert level for manual review –How much should historical demand influence the inventory management (new parts) –New methods
- 14. Page 14 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Common Questions Related to Inventory Differentiation • Is there a business case for me? • What differentiation is applicable? • What is the effort?
- 15. Page 15 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Business Case and Relevant Differentiation •Smarter basic differentiation normally yield 10-25% inventory savings at a maintained overall service level. •Adding other values such as differentiated service and techniques for different segments will add value as well as facilitate less administration. •A more exact value can only be found by: –Analyzing the data, you will be able to draw relevant conclusion as long as the business has not changed substantially. –Understanding the value contribution of Inventory Management and discuss with Sales and Marketing as well as Product Development.
- 16. Page 16 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 What is the Effort to Become Better at Differentiating? Two aspects to consider are: •Finding the relevant segments for the operation –Understand the value that availability adds for customers and profit for the different segments –Understand the data and how you can make your segments •Incorporate the differentiation in daily inventory management –System support –Skills and “know how”
- 17. Page 17 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Questions How many would say that they that are doing differentiation to its full potential? 1
- 18. Page 18 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Questions What segments do you differentiate on today and what has prompted that? 2
- 19. Page 19 COPYRIGHT © SYNCRON INTERNATIONAL AB 2013 Questions Where do you see the biggest challenge in incorporating more Differentiation in your inventory management? 3