April 1, 2003
As part of an ongoing series of online seminars for the LFM and SDM alumni community, Jim Lawton, LFM ’90, gave a presentation, entitled “Leveraging Design to Tame Inventory Management” on Friday, March 14, 2003. Lawton is the vice president of product management at the Boston-based company Optiant, which helps manufacturers design and configure supply chains to meet critical business goals.
According to a recent survey that Lawton cited, companies are reaching only 25 percent of their inventory-reduction goals. Ironically, companies invest in supply chain planning tools to achieve a substantial savings in this area.
“The primary cause of not reaching inventory targets is that a critical aspect of comprehensive inventory management is often ignored,” said Lawton. “Traditional supply chain management solutions have not addressed [certain] questions, even though making optimal inventory planning and policy decisions can deliver 10 percent to 30 percent savings.”
Companies usually focus on supply chain strategy such as manufacturing strategy, outsourcing, service classes, inventory plan execution, and inventory tracking and costing, but, Lawton says inventory planning and policy design is integral to supply chain management. To better address inventory planning and policy design, companies should answer the following questions:
- What is the best inventory mix?
- Where do we put it?
- When do we put it there?
- How much do we store?
- Who owns it?
Instead of employing the more traditional supply chain approach — flow from plant, to assembly, to distribution, to customers, to end-users — Lawton suggested a more innovative way of optimization:
- Define the optimal inventory policy on a cyclical basis.
- Deploy visibility and adaptive processes to respond to real-time changes.
- Begin with an inventory strategy that complements sourcing, manufacturing, and deployment objectives.
- Develop inventory policy that reflects differentiated customer service priorities.
“Optimizing inventory consists of routine planning and flawless execution built on optimal design,” said Lawton.
Recognizing these practices, and answering the questions mentioned above, companies can achieve their desired goals, keeping in mind that inventory management is a cyclical process. A repeatable, adaptive process for inventory planning and execution provides:
- Visibility into current inventory and inventory exceptions or problems.
- Continuous alignment of supply (inventory) with demand.
- Measured performance to continuously set and optimize inventory.
- Regular process for establishing inventory levels.
“An optimal plan, routinely executed, will yield best-in-class supply chain performance,” said Lawton.
For future webcasts, please to Knowledge Transfer on your virtual community page and click Online Seminars.