Lean supply chain management is challenging because so much happens outside the four walls. Time compression and inventory velocity are important in achieving end-to-end inventory speed. The benefits include higher inventory turns, less working capital, less cash burn, better cash flow, improved revenue yield maximization, and less write downs. Inventory begins upstream where suppliers are and should flow.

1. Lean Inventory
Doing It with a Dash of Reality for Retail
Tom Craig
LTD Management
tomc@ltdmgmt.com

2. Purpose is to challenge
traditional views

3. Agenda
 Lean
 Inventory— managing 2 parts
 How much you carry
 How fast you move it
 (Not about inventory optimization)

4. First
 How many of you are practicing Lean Inventory now?
 How is it going?
 For those who are not, why not?

5. Lean
 Roots in manufacturing
 “Value”--from the customers’ perspective
 Lean--often used inside the 4 walls of factory/DC
 More challenge with going outside 4 walls
 Even more challenge going international (aka, much sourcing
is outside North America)

6. Some Lean Basics
 Reducing waste/add no value (for customer)
 Defects
Overproduction
Transportation
Waiting
Inventory
Motion
Processing

7. Inventory
 Accounting—inventory is
an asset
 Accounting—too much
inventory is an asset
 Lean—too much inventory
is waste

8. Lean & Supply Chain Management
 Both based on pull
 Both do not like excess
inventory
 Inventory should flow
 Yet everyone has DCs
 Check dust on boxes in DC

9. Inventory
Too much is money tied up that could be
used for other purposes

10. Inventory & Too Much
 Buffer against uncertainty—base vs safety stock
 Measures (inventory velocity)
 Turns
 Days of inventory
 Inventory Rich (in transit, DCs, stores)
 Impact of excess (& obsolete) inventory
 Millions $$$ for retail sector
 Missed opportunities

11. Too much
 Get lower landed cost
 Buying more to get lower price
 Shipping more to fill a container to get lower freight (or lower
cost per whatever in container)
 Someone never wants to run out of inventory and not
sell products (security blanket)

12. Too much
 Warehouse problems
 Takes up space
 Working around it
 Multi-echelon inventory
 Stops flow of inventory
 Where does it add value
 Creates redundant safety stock
 Clash—supply chain practice vs lean

14. The Real World of Lean Inventory

15. Some Reality
 Time issues
 External
 Internal
 Domestic vs global sourcing
 Length of import supply chain
 Longer the time, more uncertainty, more inventory

16. More Reality
Complexity of import supply
chain
 Up to 17 parties
Supply chain and lean
success starts on the
inbound side
Any one remember the West
Coast ports disruption?

17. How do you manage a supply
chain—and your business—with this?

18. Service Performance
-Top 20 Carriers-
-
Remember-- you are buying a
service
 Aggregate for Asia-Europe,
Transpacific & Transatlantic
 Rolling 3-month average—
 Asia-Europe at 67%
 Transpacific at 52%
 Transatlantic at 59%
 Top Carriers for 3 months
 Maersk at 80%
 Hamburg-Sud at 75%
 Cosco at 70%

19. Service Performance
 Rolling 3-month average--
 Asia-Europe at 58%
 Transpacific at 62%
 Transatlantic at 77%
 Top carriers for 3
months—
 Maersk at 80.4%
 Hamburg-Sud at 78.5%
 Cosco at 69.9%

20. What This Service Can Mean
 Increased uncertainty for planning
 Negative impact on operations & sales
 More inventories
 More capital tied up/less liquidity

21. And Now—
Lean Inventory Practices

22. Inventory Velocity
 Move it through
 Should not sit
 How fast it moves
(velocity) thru entire
supply chain
 Not just when/after it has been
received
 Base vs safety stock

23. First
 Have to start somewhere
 Regardless of what you do with lean
 Clean up your DCs
 Get rid of the obsolete and excess stuff
 Have inches of dust on them
 Have enough to sell for years or cannot sell
 Problems with write it off??

24. Inventory
The warehouse is not a retirement
home for old inventory.

25. Where to Start
 Which inventory and why and how?
 Not for every SKU
 Doing it--multiple actions needed for lean—not just one
 Segregation analysis
 Time compress
 Supplier performance
 Root cause(s)

26. Segregate First
 Identify and assess lean
potential of items
 A vs B vs C
 Product portfolio
 Brand vs private label
 Seasonal vs Year-round
 Supplier
 More than 1 cut/segmentation

27. Data Possibilities
--SKU--
 Product category
 Value/contribution—
 Revenue
 Profit
 Cost
 Sales—dollars and units
 On hand inventory—dollars and
units
 Turns / Days on hand
 Number of times for restock—
 For regional DCs to warehouses
 Stores restocked
 Restock cycle times
 Internal
 External

28. Data
 Demand variability
 Forecasting accuracy
 Product life cycle
 Supplier
 Replenishment cycle time—
 Internal
 External--supplier and transport (order placement to door steps)
 Length
 Reliability
 Number of replenishments

29. Segregate
 Can expand into supply chain segmentation
 Gives focus and priority
 Way to deal with the noise
 Emails/calls/meetings that divert you from managing
operations/inventory
 Offer no value from a lean view--waste

30. Compress Time
 Reduce uncertainty
 Shorten replenishment
cycle
 Value Stream Mapping—
lean tool
 Picture process/steps in key
product moves from suppliers
to DCs
 Show times for each step
 Internal and external

34. Compress--More
 Think of velocity and turns like this—
 Inventory turns is how often your firm gets “paid”
 Would you want to get paid 3.4 times a year
 Then why are 3.4 turns/year okay
 Design lean process
 Key items
 Seasonal
 New products?!

35. Compress
 Assess—
 Product supply chain
 Information supply chain
 Internal—planning cycle time/S&OP
 Cross dock at DCs

36. Time
 Note with import supply chain—
 Begins with purchase order
 Transport is derivative of PO & supplier performance
 Import transport
 Container line performance vagaries
 Align key items with faster transit carrier options
 Align key items with most reliable carriers
 Cross-dock at ports (the flow of inventory)

37. Time
 Integrated process
 Horizontal process over vertical organization
 Integrated technology
 Not just WMS or track-and-trace
 Emphasis on inbound side of supply chain

38. Supplier Performance
 Perfect order—delivered complete, accurate, and on-
time
 Includes logistics service providers
 Collaboration with key suppliers & logistics service
providers
 Quality—product and service
 Lead times

39. Suppliers
 Reliability
 Better link demand/demand planning with
replenishment/buying
 Move upstream--collaboration on key products/suppliers
and their practices and their upstream supply
chains!!!!!

40. Real Supply Chain
 Is no single supply chain
 Are supply chains within
supply chains
 Move upstream—natural
extension for supply chain
management and lean
 Compress time
 Take integration (process and
technology) to new level

41. Root Causes
 The “why” of excess inventory?
 Cannot backslide
 Identify root cause(s) for excess inventory
 Correct
 Implement warning system if excesses start to creep
back

42. Warning Will Robinson
 Lean inventory—works
best as part of a lean
supply chain program /
not as a standalone
 No quick fix/silver
bullets—no “you just”

43. And What Else Is Happening
 New e-commerce
 Immediacy
 Driven by new supply chain
 Multichannel

44. Old vs New
E-commerce
 Immediacy
 Delivery within 48
hours of order
placement
 It is about the
customer
 Same old-same old
supply chain
 Web site
 Ship orders
UPS and FedEx dim pricing!

45. 45

46. And if that were not enough

47. Multichannel
 Vs the urge to increase
inventory
 Vs the idea of allocating
inventory per sales
channel
 Vs Lean Inventory

48. InventoryVelocity2
 New = Immediacy
 Expand past B2C and B2B E-commerce
 Will spread—
 Across channels
 Across markets
 Across industries
 Across the world

49. Network Analysis
 Optimize warehouse locations
 How current with present business
 How viable with growth plans
 How viable with future e-commerce and multichannel programs
 Increase velocity
 Right places to position inventory

50. New Supply Chain Management
 Drive Immediacy
 Inventory positioning
 Focus on service
 No more one-size-fits-all supply chain
 And more
 Blue Ocean Strategy Using New Supply Chain
Management

51. All these changes should not result
in

52. A comment
 Much talk about the last-mile delivery
 Last mile delivery--tip of the iceberg
 Using the old supply chain and fixating on the "last mile"
will not deliver the results customers want.
 New supply chain

53. It Is Coming