In a down economy, opt for demand-pull strategies that lead to inventory reductions

Inventories—especially for finished goods—are a major concern for everyone in an extended supply chain, especially whenever there's threat of an economic downturn. Such a scenario seems to patently justify the adoption of demand-driven or “pull” fulfillment strategies tied directly to customer orders.

04/01/2008


Inventories—especially for finished goods—are a major concern for everyone in an extended supply chain, especially whenever there's threat of an economic downturn. Such a scenario seems to patently justify the adoption of demand-driven or “pull” fulfillment strategies tied directly to customer orders.

But management of finished goods inventory is hugely complex. With durable goods, historical data indicates the use of demand-pull strategies will increase inventory levels, according to John Layden, president and CEO of Indianapolis-based Prevel Consulting .

Looking at consumer goods versus pharmaceuticals, the supply of finished goods might average 30 days with the former, but 150 to 200 days with the latter, according to Roddy Martin, VP and general manager of value chain strategies for Boston-based AMR Research .

Clearly one size doesn't fit all.

“Looking at finished goods inventory is seeing just the tip of the iceberg,” Martin says. “It's the complexity that lies beneath the surface that sinks ships.”

Finished goods inventory must be viewed in the context appropriate for each industry, market, and individual company's strategy, adds Martin. In the case of pharmaceuticals, for example, unit costs are low, margins high, and the need to ensure availability for health safety reasons warrants large finished goods inventories.

“It comes down to 'the moment of truth' for the customer,” Martin says. “In consumer goods, it's whether the item is on the store shelf. For a jet engine, it'll be different.”

Management of inventories has been made vastly more complex by shrinking product life cycles, product SKU proliferation, growing complexity and extension of supply chains, and escalating pressure to meet customer expectations. As companies move toward centralized planning with decentralized execution—rolling more plants and distribution centers into the mix—it all becomes that much more complex.



Inventory-to-shipment ratios based on U.S. Census Department data depict generally how much inventory in month’s supply manufacturers have on hand to meet orders. Lean and demand-driven strategies have effectively reduced all forms of inventory, including raw material; work-in-process (WIP); and finished goods. But where finished goods inventory on hand has trended downward since the early 1990s, those strategies have been more effective in reducing raw materials, and significantly more so in reducing WIP.

Yet some companies are making gains using demand-pull strategies to reduce finished goods inventory. While inventory turns in durable goods have lengthened over the last two to three years, consumer goods manufacturers like Proctor & Gamble (P&G), and high-tech producers like Dell and Apple are achieving annual turns upwards of 30 to 50 a year.

For P&G, it comes in mastering the base fundamental of demand pull: gaining visibility to real-time consumer point-of-sale (POS) information. With many high-tech electronics manufacturers, it's a combination of dramatically reducing production cycle times, coupled with innovation and demand-pull strategies.

“The challenge for many is managing data they're not used to dealing with, and don't have systems capable of handling,” says Julie Fraser, a principal for Cummaquid, Mass.-based Industry Directions . “Some companies might be using sales & operations planning [S&OP] solutions, but they're replanning only once a month. As you move close to real demand pull, you've got to be replanning much more frequently—even daily.”





No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2013 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
The true cost of lubrication: Three keys to consider when evaluating oils; Plant Engineering Lubrication Guide; 11 ways to protect bearing assets; Is lubrication part of your KPIs?
Contract maintenance: 5 ways to keep things humming while keeping an eye on costs; Pneumatic systems; Energy monitoring; The sixth 'S' is safety
Transport your data: Supply chain information critical to operational excellence; High-voltage faults; Portable cooling; Safety automation isn't automatic
Case Study Database

Case Study Database

Get more exposure for your case study by uploading it to the Plant Engineering case study database, where end-users can identify relevant solutions and explore what the experts are doing to effectively implement a variety of technology and productivity related projects.

These case studies provide examples of how knowledgeable solution providers have used technology, processes and people to create effective and successful implementations in real-world situations. Case studies can be completed by filling out a simple online form where you can outline the project title, abstract, and full story in 1500 words or less; upload photos, videos and a logo.

Click here to visit the Case Study Database and upload your case study.

Maintaining low data center PUE; Using eco mode in UPS systems; Commissioning electrical and power systems; Exploring dc power distribution alternatives
Synchronizing industrial Ethernet networks; Selecting protocol conversion gateways; Integrating HMIs with PLCs and PACs
Why manufacturers need to see energy in a different light: Current approaches to energy management yield quick savings, but leave plant managers searching for ways of improving on those early gains.

Annual Salary Survey

Participate in the 2013 Salary Survey

In a year when manufacturing continued to lead the economic rebound, it makes sense that plant manager bonuses rebounded. Plant Engineering’s annual Salary Survey shows both wages and bonuses rose in 2012 after a retreat the year before.

Average salary across all job titles for plant floor management rose 3.5% to $95,446, and bonus compensation jumped to $15,162, a 4.2% increase from the 2010 level and double the 2011 total, which showed a sharp drop in bonus.

2012 Salary Survey Analysis

2012 Salary Survey Results

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.