Global Logistics and Supply Chain Strategies - August 2008 - (Page 41) agers. “It’s almost becoming as important as manufacturing the product.” While some see a consequential rise in inventory levels, Singh takes a different view. So far, he says, “the impact on physical inventory has been relatively marginal.” Supply chains tend to have so many structural inefficiencies that companies have been able to reduce costs without adding substantial amounts of product to the system. What Singh does see is a change in buy aluminum wheels in China or Germany. Procurement managers recommended China, without taking into account the buffer stock that was needed to ensure a continuous supply to the plant in Germany. Having run the i2 optimization software, the company determined that China was in fact cheaper, but not by much. So it set up a spot-buy arrangement with a German manufacturer, to offset the increased risk associated with sourcing the bulk of the denly in a troubled economy, says JDA’s Johnston. Companies must be ready to alter their distribution networks accordingly. “As you bring on new customers or lose them, you may want to move those service points around,” he says. The Biggest Factor For all the talk of customer-centric supply chains, cost is the biggest driver behind companies’ embrace of more sophisticated inventory management tools, according to Nari Viswanathan, research director with Boston, Mass.-based Aberdeen Group. That, at least, is the finding of Aberdeen’s latest survey on the topic. Customer service ranks second, he says, but return on invested capital is a more important concern for managers faced with rising costs and shrinking margins. When it comes to actions taken, the number-one response cited by companies in the Aberdeen survey was looking at how much inventory was being held across the network, says Viswanathan. The second most popular technique was working to improve forecast accuracy. The third was new replenishment strategies. All three areas feed into the larger decision as to where to place manufacturing plants and distribution centers. Companies need to approach the question from multiple angles, looking at components, finished goods and product families. They must prioritize among their customers, deciding which ones are most critical and should therefore receive the highest (and costliest) level of service. By balancing long-term network design with tactical considerations, Viswanathan says, managers can actually reduce inventory levels by a substantial amount. There are numerous ways of approaching the issue of inventory optimization, says Viswanathan. They include a general rulesbased approach, setting blanket inventory targets; the “ABCD” strategy of ranking inventory according to how frequently it sells; and a series of computations, utilizing advanced planning and scheduling tools, for each tier of the supply chain. But the most effective approach is multi-echelon optimization, whereby companies calculate inventory targets across all supply chain tiers. In the process, they account for real-world variability and the links between multiple echelons, says Viswanathan. Still, such a where existing inventory rests. In many cases, it’s moving closer to the customer, in order to create a more responsive supply chain in uncertain times. The trick, says Singh, lies in taking a high-level view of inventory optimization across the supply chain, then combine it with manufacturing, logistics and distribution considerations to arrive at an overall cost. A good forecasting tool can then help companies to understand all of the options for moving product to market. It can also alter traditional assumptions. Wilwerding tells of an automotive customer of i2 that was trying to decide whether to product from China. New software tools can also help companies to differentiate popular items from slower-moving stock, so that the former can be held at regional locations while the latter rests at a centralized point, perhaps the plant warehouse. In this way, the slower stuff becomes easier to obtain when it’s needed. “Supply chains don’t work uphill,” says Wilwerding. “Trying to move from a [regional] DC on the East Coast to one on the West Coast is not going to happen. It’s costly and consumes a lot of time.” Customer behavior is yet another consideration. Buying patterns can shift sud- GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES 41
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