Measuring The Supply Chain

New methods to give companies a better view of both the forest and the trees.


Optiant allows companies to drill down, for example, from high-level reports showing days of supply across a company's entire business to look at the different types of inventory that make up that aggregate, such as inventories of raw materials, work in process, finished goods, and product in transit.

In one case, for example, its inventory optimization calculations showed a manufacturer that by increasing its raw material inventories, it could greatly decrease inventories of finished goods, and thus substantially decrease total inventory supply cost—even though costs in one functional area, raw material supply, went up.

Similarly, Terra concentrates on helping companies analyze and drive change through detailed analysis of the "levers" that affect inventory.

"If you want to drive step changes in inventory, then you have to drive step changes through the levers," comments Michael Mastroianni, vice president of North American planning, reliability, and operations support, Campbell Soup Co., which has worked with Terra.

"As simple as that sounds, people don't always get it. But the old days of the CFO 'waving a wand' and saying, 'I want inventory taken down by $15 million,' are over. Because simply taking inventories down to meet the goal could be detrimental to service, and often to total cost as well."

Using Terra's Real-Time Inventory solution, Campbell Soup has "done a lot of work to decompose the components of inventory," says Mastroianni. "Then we go back to the drivers of these components to understand what levers we should focus on. To drive down safety stocks, for example, we might concentrate on driving forecast accuracy up and volatility down.

"We've also shifted toward focusing more on measuring inventory performance in terms of 'days of cover,' instead of just by dollars," he notes.

"With some of the reporting tools from Terra, we've been able to go very precisely to a certain manufacturing line in a particular plant in a particular month and understand that if we influence cycle stock on this line, what effect that will have on a particular lever."

The company also might look at stock in-transit from plant to DC, and analyze its key drivers.

"One driver might be the fact that we're using over-the-road vs. intermodal transit, and the transit time added as a result might be driving inventory up. That becomes an issue of cost trade-off. We have to see whether at the end of the day, the savings achieved by going to a different transportation mode is really net, net the right decision, when you also factor in such elements as inventory holding costs and product obsolescence."

Another concept Terra helps companies examine is inventory "health."

"A company might say 'we want five weeks of supply', and might be on target, but still not really be aligned to where it should be, because one warehouse might have 26 weeks' supply of an item while another has none," Byrne points out.

Action Now!

Companies are also looking for supply chain measures that are more forward -ooking and immediately actionable.

"Instead of waiting until the end of the month to see how the train wrecked, and how to clean it up, people want to look down the tracks and see where wrecks may occur before they happen, so they can be prevented," says Jane Lee, director of supply chain solutions for Wilmington, DE-based Supply Chain Consultants. SCC recently introduced Zemeter Performance Management to help companies do that.

"For example, if we look at inventory and it's too high today, we'll look at forecast-to-demand and see how that's measuring up, and we'll look at the schedule of shipments into the warehouse, to see where inventory is projected to be at the end of the month based on today's numbers.

"We've always had various metrics to serve as early warning systems, but now we actually have an expert system behind the scene that says if this is high, or this is low, chances are it is due to any of several specific causal relationships. Companies can then examine each of the potential causes to see if that's where the problem lies, and take corrective action.

"The better you get at this kind of early warning management, the less likely you are to have problems, because you can trade off time, capacity and inventory against one another, as long as you can plan far enough ahead," she points out.

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for FoodLogistics.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required