Global Logistics and Supply Chain Strategies - August 2008 - (Page 55) OPINION accurately scheduled and deployed to respond to demand as it is placed for operational execution. This represents a push/pull boundary in the supply chain. Operations and inventory optimization tools are required to provide planners and schedulers with daily synchronized recommendations on what to move, make and source to profitably respond to daily demand variability with high service levels, balancing supply economies to demand uncertainty. Let’s keep the tail from wagging the dog. Shifting the measuring point further down the supply chain makes it more responsive to changes in actual demand while simultaneously providing higher value data enabling postponement strategies to further reduce costs. When a manufacturer rewards a customer for placing large, infrequent orders, the actual consumption (by the consumer) rate gets lost in the buffer inventory staged along the distribution channel. If the final consumer’s demand for a product increases (or decreases) and the flow of material is measured on the consumer’s side of the inventory buffer, the manufacturer will see the demand change before its customer’s inventory changes enough to cause an order to be generated, changed, or just not placed. The results from improved forecasting include better working capital control and utilization, better customer service, and reduced operating cost through manufacturing schedule stability and asset utilization. Vendor-managed and consigned inventory are also managed more closely with inventory movement data captured and exchanged in near real time, inside the customer’s premises. Instead of waiting for a customer to notify the supplier of consumption, RFID tag location can be used to record the movement from a warehouse location onto the production floor or to a store. In VMI environments, these movements are used to trigger restock events or inventory adjustments while improving cash flow from near realtime invoicing. Taking advantage of the serial number associated with each tag, manufacturers can monitor the aging of specific pallets, cases or reusable transport items of inventory on the customer’s premises and potentially head off product spoilage or product-aging claims. When will this great data become available and be integrated with supply chain optimization systems? That depends on: • RFID tags that are inexpensive enough for widespread use; • The widespread adoption of standards for tags and data formats; • The implementation of data networks to share the data; • Mandates by major supply chain players; and, • The inherent value in the use of the data is realized by manufacturers. What can be done today to improve supply chain optimization looking forward to RFID’s eventual widespread implementation? Get your supply chain optimization systems in place and ready to accept the new data. Manufacturers are not integrating business operations planning and inventory optimization to manage day-to-day operations, production scheduling, or inventory management. This straightforward technology improves a manufacturer’s view into the future, especially important in common situations where manufacturing lead times exceed customers’ lead times. Supply chain optimization tools enable planners and schedulers to manage these push/pull boundaries to dynamically set inventory requirements daily to deliver superior customer service with minimal cycle and safety stock inventory. Use the forecasts, and their inherent uncertainty, to dynamically size inventory and safety stock levels daily to provide process control bands that enable operations to make profitable decisions. Mathematical models are available to dynamically adjust inventory limits and safety stock levels daily considering variability across the supply network. These models use data from existing ERP systems and even Excel spreadsheets to continuously make small adjustments to these levels as actual demand changes, as demand becomes more or less erratic, and as the financial parameters (COGS, cost of capital, etc.) change. Use the forecast demand levels to drive Integrated Business Operations Planning (IBOP) dynamically to adjust optimal production run lengths, implement postponement strategies, and optimize inventory requirements/re-deployments most profitably synchronizing operations to respond to demand variability based on shareholder value. Well-thought-out mathematical models based in actual practice and production characteristics considering cost of goods, cost of setups and transitions, capacity constraints, interconnected production lines, current inventory, and other pertinent factors determine the true economic order quantity (EOQ) for production/distribution to manage push/pull time constraints with high service levels. EOQs need to be dynamically re-evaluated on a daily basis. As demand changes and the cost and constraint parameters change over time, the optimum production quantities change. Setting the production run size once or reevaluating it quarterly, and not revisiting it frequently leaves room for your world to change and your production plans to drift far away from optimum. Without constant monitoring and adjustment, profitability and customer service suffer. Use safety stock levels, profit optimized production run lengths, and inventory projections to determine what product to produce or move around the distribution system and determine when to do it. If the planners and schedulers are doing this job manually, or with limited home-grown tools or spreadsheets, they can’t complete a full analysis of every SKU at every location every day to know the most important thing to produce or move. They aren’t considering the variability of the many factors that influence their decision making; instead, they are working with averages, leaving room for “emergencies,” resultant schedule changes, and expediting, i.e., firefighting. While this article is about the value of RFID operating data impacting supply chain planning and optimization, RFID isn’t necessary to begin implementing an IBOP process within your organization. Lean Six Sigma process improvements supported by technology enable you to take control of your operations to profitably respond to demand with high service levels in preparation for widespread adoption of RFID. Get your inventory and production/distribution decisions optimized today using current data. This positions your company to take maximum advantage of RFID data when it arrives. While others are complaining about the cost of RFID, you can be enjoying the competitive advantage. To access this article online, visit The Digital Edition at www.SupplyChainBrain.com. www.SupplyChainBrain.com GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES 55 http://www.SupplyChainBrain.com http://www.SupplyChainBrain.com
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