Global Logistics and Supply Chain Strategies - August 2008 - (Page 42) technique remains untested at many companies, at least in its full-blown version. A number of companies continue to make separate calculations for inventory and customer service at each level of the supply chain. The higher view may lead to pockets of increased inventory. “Don’t hesitate to add inventory as a competitive weapon for certain product lines,” says Viswanathan. “Just make sure that customer service levels are high, and overall inventory levels are low.” Inventory Equals Cash Far-seeing companies are beginning to view inventory in the same way that they have managed cash, says Fred Lizza, chief executive officer of Optiant Inc. While multinationals maintain bank accounts around the world, they manage total cash balances on a global basis, through centralized credit facilities. Similarly, companies are asserting high-level control over total inventories, even as they allow for day-today management at the local level. One user of Optiant’s software, a large consumer products company, is deploying the application to manage inventory that is actually owned by partners elsewhere in the supply chain. The information it derives from the tool allows the company to assert influence over product held by both retailers and suppliers. Lizza expects to see such arrangements work themselves into future supplier-buyer contracts. Global inventory management offers a number of advantages to the organization, Lizza says, including increased turns; fewer stockouts; less excess and obsolete product; better responsiveness to changing customer demand; and tighter control over shipping lead times, manufacturing yield rates and issues related to seasonality. Optiant’s software takes into account the full range of costs that affects a product’s path to the buyer, Lizza says. Yet coming up with that number isn’t always easy. Much depends on the quality and depth of the data provided by customers, who in turn must rely on their many partners in the supply chain. Often the application has to deal with incomplete data as well as the inaccuracies that plague even the best forecasts. Still, says Lizza, the scenarios generated by the system manage to do a good enough job of matching up with reality. Boston Scientific, another Optiant customer, found In a world where product travels 5,000 miles or more to reach buyers, some increase in inventories is probably inevitable. But that doesn’t mean that companies should flood their distribution centers with buffer stock. Analytical software often can help them to strike a balance between transportation and inventory expense. that its model came within a few percentage points of the way things actually played out. The company ended up with inventory reductions ranging between 15 and 26 percent, and service levels of 98 to 99 percent, Lizza says. Inventory strategies are also changing in the service-parts sector. As new-product sales stall in a questionable economy, companies begin to place more emphasis on the after-sales market as a means of boosting revenues and securing customer loyalty, notes Tim Andreae, senior vice president of global marketing for MCA Solutions in Philadelphia. In many cases, that means going from next-day service for repairs, maintenance or product replacement, to a same-day commitment. To make that possible, companies must shift their parts inventories to forward locations. They need to know exactly where that inventory has to go for maximum impact and minimum cost, he says. Good forecasting, even with the inevitable errors, remains a crucial element in successful inventory strategies. The best way to cope with skyrocketing fuel prices “is to find a way not to ship it at all,” says Wilson Rothschild, industry and product marketing manager with Infor in Alpharetta, Ga. “Forecast accuracy can eliminate transportation.” Improved forecasting tools add system constraints and allow companies better to reflect the real world in their planning. They also bring together the operational and strategic levels of the planning process, which have tended to be overseen by different individuals within the organization, says Rothschild. So companies can make high-level decisions on which DCs to open or close, then deploy operational planning tools for managing local inventory, customer demand and replenishment. Ultimately, says Rothschild, supply chains will have to become “more risk intelligent.” The array of IT systems within an organization must be able to recognize the location and condition of inventory, then factor in multiple risks related to stockouts, inventory placement, transportation, time to market, obsolescence and supplier performance. External factors such as the cost of energy will keep on pushing companies to embrace new strategies for inventory optimization. “We’re looking for people that are questioning their assumptions,” says Lizza. “That’s the trigger for us. That’s what gets us in the door.” To access this article online, visit The Digital Edition at www.SupplyChainBrain.com. Resource Links Aberdeen Group, www.aberdeen.com BASF Corp., www.basf.com ILOG, www.ilog.com Infor, www.infor.com i2 Technologies, www.i2.com JDA Software Group, www.jda.com MCA Solutions, www.mcasolutions.com Optiant, www.optiant.com SmartOps, www.smartops.com Supply Chain Consultants, www.supplychain.com 42 AUGUST 2008 www.SupplyChainBrain.com http://www.SupplyChainBrain.com http://www.aberdeen.com http://www.basf.com http://www.ilog.com http://www.infor.com http://www.i2.com http://www.jda.com http://www.mcasolutions.com http://www.optiant.com http://www.smartops.com http://www.supplychain.com http://www.SupplyChainBrain.com
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