POWER March 2014 - 63

SUPPLY CHAINS
actually reduce inventory by $8.2 million with no effect on reliability.
Steve
Sotwick, Oniqua's vice president of business development
for North America, explained some ways in which inventory optimization
can aid in supply chain management. Having a clear view
of each business unit's needs allows procurement staff to better
identify critical inventory, forecast the needs for it, and spotlight
inventory that is no longer needed. Creating separate inventory
segments as part of category management allows category-specific
inventory to be matched to that business unit's strategies instead of
applying across-the-board policies that are likely not appropriate
for all stock.
Utilities or generators with multiple like-kind units will often
centralize storage of critical spares that may be shared among
their own units. This works well because the carry costs of the
inventory can be spread among multiple plants. Sometimes this
" part sharing " arrangement will occur between companies, with
the arrangement often brokered through the manufacturer, though
this is fairly rare. While this can reduce costs, a challenge arises
if two plants require the same part. Careful planning and communication
is also necessary to make clear who takes ownership
of used parts. Because most major equipment can endure only so
many refurbish cycles, plans must be in place for how that cost
is shared.
Improved Metrics
Finally, all this fine-grained management is difficult to impossible to
achieve effectively without accurate metrics to track how new strategies
are working and without robust processes for using metric performance
to drive improvements.
Most utilities have well-defined fulfillment metrics for their supply
chains in place. Less common, however, is measuring flexibility and
responsiveness, even though these metrics are critical for capturing efficiencies.
It is also common for unplanned or rush orders to be excluded
from metrics, even though these are the events most likely to result in
supply chain disruption and extra costs.
Several speakers noted that advanced organizations are most likely
to measure key metrics across the entire supply chain. More importantly,
metrics need to be in place to measure business unit expectations,
not just traditional procurement performance. Optimally, this
takes the form of a service-level agreement (SLA) between procurement
and the business unit. The SLA flows in both directions, spelling
out not just expectations for order fulfillment but also business unit
performance in accurate forecasts and communication of needs. The
SLA also has to be a dynamic-rather than static-tool that is constantly
being evaluated and updated to support continuous improvement
of the supply chain.
Defining metrics is not always straightforward. Some, like order
fulfillment, lend themselves easily to measurement; others, like employee
skills or effective communication across the supply chain, are
harder to measure accurately. Useful metrics need to flow from strategic
goals while being tied into overall corporate objectives.
The Big Picture
It's important to remember that not all supply chain management innovations
necessarily support one another. Increased redundancy to reduce the
risk of disruption, for example, can increase complexity of communication
and performance metrics. An integrated supplier network has more
parts to monitor, increasing the risk of losing focus on the whole. Successful
companies will maintain a holistic approach in managing their supply
chains, making visibility, flexibility, and collaboration key priorities. ■
-Thomas W. Overton, JD is a POWER associate editor.
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POWER March 2014

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