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Understand the benefits of inventory optimization software Learn how to choose between RFID, barcoding, and voice Read how cloud networks can provide global inventory visibility See why some companies are reconsidering vendor managed inventory (VMI)
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Does inventory optimization lend itself to certain types of manufacturers? Cecere: Yes, companies that have expensive inventory, or perishable inventory, short lifecycles --anything that causes inventory pain. Companies that are sophisticated enough to be sensitive to working capital. What are the various types of inventory management problems that can be addressed or solved through inventory optimization? Cecere: Postponement -- where is the right place for me to postpone? Postponement is where Im going to hold something as an intermediate. My favorite example of postponement is a paint store, where they hold everything as like white paint, and then they add colors at the counter. Thats postponement. People that can do postponement -hold things as an intermediate -- and add the flavors, the colors, at the last minute get flexibility. So, inventory optimization helps with postponement: What should I postpone? How should I postpone? These are long supply chains, so they could postpone at many points on the supply chain, or they could not postpone at all. They could postpone in some factories and not in others. It also helps with multiple-company decisions -- who should hold inventory and where. If its done right, what are the benefits of using inventory optimization software? Cecere: Lets talk about done right. It requires a fairly sophisticated user, and it requires an organization that cares about cash flow. But if its done right, the impacts are huge -20-30% reduction in [use of] working capital, 10-15% improvement in customer service. What kinds of solutions are out there, and are they sold as standalone products or embedded with other tools like demand planning suites, etc.? Cecere: They come in all different flavors. Although most of them are standalone solutions, some of them have started to become parts of suites as theyve been purchased by other companies.
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What features should potential users be looking for? Cecere: [Companies] should be looking at the depth of postponement and the models ability to handle manufacturing versus distribution. What are the biggest organizational or technical challenges that manufacturers should know about before implementing inventory optimization software? Cecere: Theyve got to have planners that know how to use it. The biggest barrier is planning expertise. The second barrier is the ability for the management team to focus on working capital. Data quality can be another, but the more important issues are the changemanagement issues. It takes a pretty sophisticated company to be fixated on working capital. Most companies are focused on vertical orientation, reduction of costs, asset utilization. The best supply chains have a balance between working capital and asset utilization. A very vertical orientation will get you out of balance.
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Apriso is a software company dedicated to providing its manufacturing customers a competitive advantage. It does so by enabling organizations to quickly and easily adjust the execution of manufacturing operations in response to market changes and unexpected events. Aprisos FlexNet platform provides visibility, adaptability and real-time control of manufacturing operations across the enterprise and supply chain network. For additional information, please contact us at www.apriso.com.
Apriso | 301 East Ocean Boulevard, Suite 1200, Long Beach, California 90802 Toll Free: 888.400.7587
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really had is more of what Im going to call lip service to VMI, Cecere said. Give me recommendations on inventory and replenishment, but Ill make the final decisions, says the retailer, but what theyre really getting is free planning. For example, companies like Wal-Mart Stores Inc. often use VMI to offload the labor associated with planning, and instead rely on the manufacturer in an effort to reduce costs and shift planning onto someone else, Cecere said. Wal-Mart isnt the only one. Smaller grocery chains have gone to manufacturers like Procter & Gamble and said, Youre a bigger company. Please plan for me. Manufacturers that make products with short cycle times and high volumes are also using VMI, according to Cecere. That includes seasonal products like cold medicines and suntan products, where demand is high but unpredictable. What are my VMI options? Traditional VMI systems were built around extending core supply chain planning functions and installed on the premises, according to Gartner. This meant creating a new database to support customer account data or passing data back to the supply chain planning application. Today, however, there are many more Web-enabled applications that give customers a wider variety of options. Cecere recommends buying Software as a Service as opposed to on-premise versions. Things change so much, and I would be looking at a provider that has flexibility, she said. Others had a different take. David Mackail, who oversees the European VMI operations for a global footwear company based in the Pacific Northwest, said though its uncommon for apparel companies to use VMI, its necessary in his market. In Europe, we have a lot of smaller customers, Mackail said. Once you get outside of top 20 [customers], the supply chain capabilities are not very good. Theyre stuck in the 1970s.
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Those kinds of customers want VMI because they dont have the capability to flow the product to the stores themselves. Mackails company uses a stand-alone, on-premise VMI application that links up to sales and operations systems. The replenishment algorithms are very simple, but whats r eally important is the analytical tools that come with the software, he said. You have to be able to have the right tools and the right KPIs [key performance indicators] and the right analytics. Whats next for VMI? Cecere said manufacturers and customers who are interested in VMI implementation should first ask themselves who owns the inventory and who owns the order. Once they begin executing their plan, they need to have an idea of what success looks like, Cecere said. This initial period should take about six months, she said. Its enough time to clean the data, establish the system, and determine if inventory is indeed being lowered, shelf position is improving, and the two sides are working more efficiently and more closely than before.
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Every major 3PL has some kind of integrated system suite like that, he said. You can get down to the item level with these systems, usually. A few 3PLs can even take over functions normally performed by manufacturers, such as demand planning and kitting of related products. What if you have your own WMS and TMS? You might just tell your provider to use your system, Armstrong said. But 3PLs can save more money with their system. A smaller number of providers specialize in just the computer networks and dont own a single truck or warehouse. Their goal is to be a single source of applications and data for all the major steps in global logistics, including inventory, transportation and order management, as well as compliance with international regulations. Moving toward collaborative global inventory management Analysts and vendors say these global logistics networks make it easier for manufacturers, suppliers and 3PLs to work together to optimize the supply chain and reduce inventory costs. Traceability of subassemblies and raw materials is another important driver of global visibility into inventory. If you dont have that visibility, then you cant do any contingency planning or workarounds if that component is in the critical path, said Joseph Kemp, senior solutions architect at Patni Americas Inc., a consulting firm based in Cambridge, Mass. But companies must first overcome trust and integration issues to use the networks, said Saverio Barbera, associate vice president for the supply chain practice at Patni Americas. You have to figure out how to relinquish the control, Barbera said, adding that many owners of top-tier ERP systems have the misconception that its too expensive to push out inventory data to their global suppliers. Large, multinational manufacturers rely heavily on electronic data interchange (EDI) for their inventory-related transactions. For smaller companies, cloud computing technologies
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like Software as a Service (SaaS) could help make global inventory visibility more affordable. The mom and pops dont have EDI infrastructure, Ba rbera said. That makes it hard for them to get access to supplier network collaboration (SNC), a type of network offered by major ERP vendors that lets suppliers and manufacturers share information, including inventory data. Patni is working to convince the vendors to offer cloud-based SCN lite for easier access -- and as an ERP integrator for those same companies, it stands to profit if the idea takes hold. Barbera said his previous employer, the home-appliance maker Whirlpool Corp., uses just such a cloud-based system to give its suppliers access through Web browsers. Reaping the benefits of global trade Inventory optimization, demand planning and other common methods for lowering inventory costs dont work as well when goods sit in port awaiting customs clearance. If you have truly offshored your manufacturing, its very hard to handle the regulatory compliance, Armstrong said. Manufacturers often turn to freight forwarders who specialize in moving goods across borders and, like 3PLs, maintain their own information systems to give customers real-time views into their inventory. Other manufacturers use a SaaS global trade management (GTM) application to manage security clearances and compliance with import and export regulations (see the sidebar). How should manufacturing IT departments respond to the need for global inventory management? Its important to be part of the team that helps do the selection for logistics providers, Armstrong said. Armstrong also advised hopping on the bandwagon with manufacturers that are consolidating their businesses on three or four 3PLs, which gives them more leverage and makes ITs job easier.
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Most manufacturers are going to have a lead logistics provider, he said. The fewer the number of providers, the fewer data sets you have to handle and the fewer the integrations.
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Choosing RFID over barcodes makes more sense with expensive products like plasma TVs, computer servers and aerospace parts, where the cost of a tag is inconsequential compared with the cost of the item, Klappich said. RFID also makes sense with items such as flooring rolls, which are large and bulky and would need multiple barcodes, he said. One of the other primary concerns with RFID is that it is more difficult to use than barcode scanning, according to Bert Moore, director of communications and media relations for AIM (Warrendale, Pa.), an association of automatic identification and mobility vendors. Even if the technology were plug-and-play, the implementation is not, Moore said. If not configured properly, RFID will give you useless information at the speed of light. For one, users must survey their site for interference. Electrical devices like welding equipment and conveyor motors can cause serious interference with RFID readings, and products that contain liquids or metal can interfere with the frequencies of the tags, which also cannot be read around corners, he said. Users also need to make sure the overall RFID configuration, as well as the tags themselves, undergo rigorous testing. Companies should never design an RFID system based on the spec sheet, Moore said. On paper, it may look as if a tag can be read from 20 feet away -- but that may only be in pristine environments. The more realistic scenario might be closer to seven feet. Its important to be realistic about RFID, Moore said. Its not the greatest thing since sliced bread. Its just another tool. Voice-directed warehouse management While barcode scanning and RFID tags are tried-and-true warehouse management staples, other alternatives, such as voice technology, are growing in popularity, Klappich said. Voice technology allows workers to pick orders verbally by using a wireless, wearable computer with a headset and microphone, all of which communicate with the WMS. The technology can also be used for goods receiving, pallet put-away and stock checking,
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according to the website voicepicking.com. One benefit of voice technology is that companies no longer have to print and attach labels. Voice used to be relegated to places where you couldnt use your hands, like a guy pic king ice cream in a freezer, stuff with big mittens and coats, Klappich explained. The technologys gotten inexpensive and ubiquitious enough that were seeing people use voice. Voice is growing, much more than in the past. People are operating their entire pit processes with voice.
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About Apriso
Apriso is a software company dedicated to transforming global manufacturing operations. It does so by enabling manufacturers to achieve and sustain manufacturing excellence while adapting quickly and easily to market changes. Apriso's FlexNet is a BPM platform-based software solution that helps manufacturers to increase efficiency, agility and quality while reducing costs and idle inventory. Apriso supports global continuous improvement by delivering visibility into, control over and synchronization across global manufacturing operations and the product supply network. Apriso serves 200+ customers in 40+ countries across the Americas, Europe and Asia. Customers include GM, Volvo CE, Honeywell, L'Oral, Trixell, Lockheed Martin, Bombardier, Textron Systems, MBDA, Saint-Gobain and Essilor. Learn more at: www.apriso.com.
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