Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I’ll be reviewing a whitepaper entitled “Five Inventory Core Competencies That Can Make or Break Your Competitive Advantage” from Logility.
I hadn’t heard much about Logility before, but I was impressed with this whitepaper. I found that it shared a lot of great ideas. The only downside was that – at a mere nine pages – it was too short to go into the “nuts and bolts” of how to implement those ideas.
At the core of the whitepaper, as you may imagine judging by the title, are five techniques for more profitably managing inventory. A brief description of each of those techniques is as follows…
1. Multi-level Inventory Optimization: Different stakeholders within a manufacturing company have different interests with regard to how much inventory to keep on hand, causing a situation where inventory is managed by “separate silos in which one team may be motivated to buy in bulk, another to minimize the number of production set-ups and a third to hold enough [finished goods] to ensure 98% customer service at all costs.” The whitepaper insists that “inventory policy for all three must be coordinated” and explains how strategically increasing raw materials and work in process inventory can decrease finished goods inventory needed and produce significant savings.
2. Synchronize Time-phased Business Cycles: This technique indicates that “inventory optimization should focus on setting the best possible targets for every individual time period of the business cycle, taking into account the change in demand as well as the change in demand uncertainty over the course of the cycle.”
3. SKU Proliferation and Postponement: Changes to products and how they are packaged and promoted often result in many new, discrete items (referred to as stock keeping units, or SKU’s) being added to inventory. According to the whitepaper, the “Postponement” process aggregates inventory and delays the use of some SKU’s to increase flexibility and reduce cost. I would have loved some more detailed explanation of this particular technique.
4. Strategic Outsourcing: As taught in the Next Level Purchasing online class, Executing A Global Sourcing Strategy, it is important to focus on total landed cost when making an offshoring decision. The whitepaper points out that not every supply chain manager does so: “The most difficult part of an outsourcing evaluation is accurately assessing the impact of increased time in the supply chain. When manufacturing shifts to Asia, how does the impact of eight additional weeks of shipping compare to the material cost and production savings?” Not every destination requires eight weeks to ship from Asia, but the point is well-taken. This section also includes some guidance on how to decide which items to offshore and which to keep local.
5. Position Capital for Customer Service: This final section encourages readers to use a different inventory strategy for each “class” of customers. Some customer types are more demanding, but that doesn’t mean that you have to apply the same costly strategies to all of your inventory.
For me, this whitepaper represented a pleasant introduction to Logility. If you would like to get your own copy of this whitepaper to read the additional words of wisdom, you can get one from Logility’s website (registration required).
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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