Consider Company XYZ, which has a portfolio of 1,500 products to market that offers a comprehensive manner (ie, not specialized for a particular client) through a network of ten distribution centers throughout the country coverage . In general, their products face highly seasonal and aggressive competition, increasing the variability of demand and consequently their difficulty planning.
In recent years, the market has been demanding more variety, which has forced the company XYZ to focus on innovation and generate an average of 20 new products per year.
A situation such as XYZ Company involves a high complexity in the planning, management and execution of the processes of their supply chain. A critical aspect of planning is deciding how and when to replenish inventories in distribution centers. This definition follows directly impacts business results:
- Service level: product availability at the time in which the client needs (according to a pre-service offering defined).
- Investment in inventory : The availability poorly planned investment generates a surplus of inventory, which in addition to the cost that this entails, it reduces the speed at which the business becomes the asset in flux.
- operating costs: Poor inventory planning results in inefficiencies in the operation of distribution centers it is incurred in excess or lack of capacity and additional costs such as transfers of products, differences inventory, overtime, etc..
Planning inventory
Before choosing an inventory strategy is necessary a couple of previous definitions:
- decoupling point the supply chain: What items must be produced to order (make to order) and what items should be produced for inventory (make to stock). (See Figure 1).
- design the distribution network: Where should keep an inventory of the products under the scheme to make stock.
Once you have made these decisions for each product (which is held in inventory and where) it is necessary to define the mechanism for managing a strategy to continue to make to stock, is ie the inventory planning process. The
inventory planning process part of a macro planning process supply chain. While not unique, it is one of the most important, the rest of the planning processes (distribution, capacity, production, materials) depends largely on inventory strategy is chosen.
To simplify the example, all XYZ company's products are make to stock and all should be available in each of the ten distribution centers. Therefore, the inventory planning process is critical to keep the business profitable and competitive. This process should answer the following questions for each product-distribution center:
- How much inventory should be?
- How often do you have to replenish that inventory?
- How should generate the replacement requirement?
Strategies Inventory
To answer the three questions is necessary to start from a common element: the demand plan or forecast. One of the raisons d'être of the inventory is to ensure the supply of a product with uncertain demand. A more uncertainty, more inventory. Therefore, any strategy of inventories should be based on a demand schedule that exists as formal process within the company.
XYZ Company maintains a demand planning process supported with a tool specialized information technology forecasts and the share of sales, service, marketing and logistics
Products A few features remain variability and uncertainty, so stay low and forecast errors are called functional products. B products maintain a high degree of innovation and high degree of uncertainty facing, so that on average forecast errors remain high. Products C are quite erratic, mainly because of the low volume and uncertainty in their frequency of travel.
Given this scenario, the XYZ company must decide how to use the forecast for the definition of how, when and how to manage inventory. At present, due to information technology tools that support the operations of the supply chain, there are two different ways to use the forecast for inventory decisions:
- Traditional (DRP ) The DRP (Distribution Requirements Planning) is usually in the form of distribution of any ERP and uses the forecast to calculate the maximum and minimum to keep each product in each distribution center. This calculation can be dynamic parameters (recalculated every day) or static (calculated once every 3 or 6 months out and feed the system). The schemes supported by a DRP are basically two: Point of order (with variations of maximum and minimum fixed amount, among others) and fixed rate (one filling or a maximum fixed amount every X days).
- Replacement for prognosis: This method is supported by technologies APS (Advanced Planning Systems) and uses the forecast for planning
Although the replacement of prognosis is presented as the best alternative on the market, has one major drawback: it is 100% sensitive to the forecast error. Imagine the excess inventory and additional costs for planning in this way products with 300% error. This results in poor utilization of chain capabilities and a poor ability to respond efficiently to uncertain demand.
other hand, the traditional method, although cash, inventory tends to be on products with low uncertainty and low forecast error, it requires a safety stock to protect against the time range. What is the best strategy for XYZ company? The answer must meet the following criteria:
- Ensure service
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- be manageable, manageable
strategy XYZ Company should consider the demand characteristics of the products and the forecast errors. The possible elements of a strategy that meets the above criteria is:
- Focus the demand planning process to reduce the error of products A, B and input, leaving only the products C purely mathematical prognosis. This action should have clear targets for reducing error and responsible in each area.
- Using the method to forecast replacement products for products A and B with errors less than 30% -40%.
- Using the traditional method of product B with errors greater than 40% and for product C.
Conclusions
inventory The best strategy is one that understands and considers the characteristics of demand for the products and their complexity. Due to the impact that the inventory has throughout the chain, this must be a business critical process to ensure proper maintenance of the systems that run it.
A company such as XYZ requires technology tools that will help support the great complexity of managing 1,500 products in 10 distribution centers with features of high uncertainty and a high rate introduction of new products.
Finally, the end of the inventory planning process should be, as the supply chain to maximize customer service, optimizing resources and capabilities that the company devotes to it. A correct definition of the strategy inventory is a key element in achieving these objectives.
Source: www.lrmconsultorialogistica.es
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