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Stocking Strategy is the Door to Supply Chain Optimization

By Tam Perepa January 24, 2018 by Tam Perepa

Many organizations underestimate the significant value of analyzing their inventory stocking strategy on overall supply chain operations. It is difficult to zero in on stocking strategy because much of the attention is drawn to the critical items that are in immediate demand and inevitably not available on shelf thus impacting critical production or maintenance operations. We recently proved significant and immediate value to a client by ensuring that inventory stocking strategy is given the attention it deserves. This article will shed some light on how such an impact was made possible and showcase a compelling urgency for organizations to focus on their inventory stocking strategies to achieve better balance in their supply chain operations and service level performance.

Symptoms of a Poor Stocking Strategy

A surgical analysis of the client’s operational problems led us to analyze their current stocking strategy. Some of the symptoms are:

  • Poor service level performance metrics;
  • Fast moving, critical items are not on the shelf when needed;
  • Excess supply of not so fast or slow-moving items;
  • Re-order levels unrealistic with demand; and
  • Shrinking warehouse space filled with material that seems to be aging and never moving.

The discovery demanded a different stocking strategy to meet the expectations of service level performance and to improve the production up-time.

Analysis

A detailed analysis gave insight into the root causes for supply chain “choking” for over 3000 items that have been prioritized for focus out of more than 50,000. The causes or Choke Points were found to be spread across the entire end-to-end supply chain operations shown below:

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 Re-Defined Stocking Strategy

Armed with the specific root-cause information of the “choke-points” we directly addressed and fixed the re-order levels for each of these critical items that have a direct impact on 80% of the service level performance and production downtime issues. The following re-defined stocking strategy proposal was made to immediately address the problems associated with service level performance and production downtime issues.

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This led to an urgent call to action across cross-functional supply chain operations core team with following roles to sit under a roof for three weeks to clean up the choke-points: MMWH Inventory Specialist, Buyer, SAP System, MMWH Material Coordinator, Planner, Spare Parts Coordinator.

Within three weeks 90% of purchase requisitions pending conversion to Purchase Orders have been cleared and underperforming suppliers have been called to action with equal urgency. It is expected that fiscal 2018 will see planned production up-time improvement to near 100% (barring unforeseen breakdowns).

To Further Consolidate the Gains:

• We have developed a sustainable model for the core supply chain team to continue to work together in a room – as a way of life
• A progress monitoring metrics system has been put in place for the executive leadership to maintain a line of sight on the status of balance in supply chain operations (metrics specific to choke points in the end to end supply chain process identified during the analysis).

This provides a compelling case for any supply chain optimization initiatives to look no further than their inventory stocking strategy as the door into optimization effort.

This is important because it demands a rare practice of supply chain teams to work in cohesion as one team to provide significant cost avoidance, improved service level performance and reduction in production downtime.

That is when an end-to-end supply chain operation truly runs like a “well-oiled machine.”

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