At the present time, supply chain management is an essential function of most businesses. There are many challenges in managing the supply chain function. The greatest challenge faced by businesses in a supply change management process is managing their inventory.
Businesses fill up what they sell, but many times there are instances of high stock outs of parts or raw materials despite of having high inventory levels or introduction of new products while the old products still fill up the pipeline. Such conflicts, lead to many negative effects on a business, such as lost sales, lost clients, negative client feedback, and finally slow and declining profit of the company.
One needs to understand that inventory control is essential to be able to provide better customer service. It is very crucial to have inventory control where the customer tolerance time is low and hence inventory needs to be maintained.
While not all factors are within the control of inventory managers, the inventory managers need to have a strong grasp on the following variables at any location –
- Replenishment lead time (RLT)
- Demand during lead time
- Variation in supply time
- Variation in demand
RLT is the most important variable as it also impacts all other variables.
Forecasting is an important component of supply chain management. To improve forecasting, focusing on one variable – the replenishment lead-time is very important. Reduction in the RLT leads to managing with much less inventory and improved forecasting accuracy.
Once a business significantly reduces RLT, it needs to stock enough to cover any demand arising during the supply replenishment time. The next step then is to focus on fast replenishment to the actual consumption from the stocks. In conventional push based supply chain, major inventory is pushed at lower nodes i.e. distributors and retailers where demand fluctuations are most erratic.
Our customized solutions based on the Theory of Constraint methodology work on the “Pull” mechanism instead of conventional “Push” mechanism. Our framework introduces “Norm” at various nodes and a Central Warehouse to hold major inventory thereby less inventory/stock needs to be maintained and it is replenished at regular intervals (RLT) depending upon actual consumption at that node. This mechanism ensures the business has skew of inventory at a point close to supply where the demand is flat and stable instead of pushing it to distributors and retailers where the demand fluctuates erratically.
Following implementation of Replenishment solution our customers have seen the following outcome –
- Drastic drop down in inventory
- Higher ROI of dealers
- Significant Sales jump of around 30 to 40%