Inventory Optimization in Supply Chain:
Zero Inventory Approach
Kanaka B*
Managing optimal inventory in the supply chain is critical for an enterprise. The ability to increase inventory turns and the use of best inventory practices will reduce inventory costs across the supply chain. Moving towards zero inventory will result in effective inventory management in the business process. Inventory Optimization Solutions can be implemented easily using inventory optimization software. With Radio Frequency Identification (RFID) technology, inventory can be updated in real time without product movement, scanning or human involvement. Companies have to adopt best practices to optimize operational processes and lower their cost structure through inventory strategies.
Introduction
With supply chain planning and latest software, companies are managing their inventory in the best possible manner, keeping inventory holdings to the minimum without sacrificing the customer service n
耒阳市eeds. The zero inventory concept has been around since the 1980s. It tries to reduce inventory to a minimum and enhances profit margins by reducing the need for warehousing and expenses related to it.The concept of a supply chain is to have items flowing from one stage of supply to the next, both within the business and outside, in a seamless fashion. Any stock in the system is caused by either delay between the processes (demand, distribution, transfer, recording and production) or by the variation in theflow. Eliminating/reducing stock can be achieved by: linking processes, making the same throughput rate on processes, locating processes near each other and coordinating flows. Recent advanced software has made zero inventory strategy executable.
"Inventory optimization is an emerging practical approach to balancing investment and service-level goals over a very large assortment of Stock-Keeping
Units (SKUs). In contrast to traditional ‘one-at-a-time’ marginal stock level setting, inventory optimization simultaneously determines all SKU stock levels to fulfill total service and investment constraints or objectives".
Inventory optimization techniques provide a new logic to drive the system with information systems. To effectively manage inventory, businesses must also optimize the costs of buying, holding, producing, moving and selling inventory.
The objective of inventory optimization is to sustain minimal levels of inventory while providing the maximum possible levels of service. Supply Chain Design and Optimization (SCDO) is an inventory optimization solution which helps companies satisfy customer demands while balancing limitations on supply and the need for operational efficiency. Inventory optimization focuses on modeling uncertainty and variability and minimizing the risks they impose on the supply chain.
Inventory optimization can help resolve total supply chain cost options like:
•In-house manufacturing vs. contract manufacturing;
•Domestic vs. off shore; and
•New supplier's cost vs. current suppliers' cost.
Companies can benefit from inventory optimization, provided they control their supply chain processes and the complexity of supply chain. In case the supply chain is very complex, besides inventory optimization, network design has to be used to reap the benefits fully. This paper covers various inventory models that are available and then describes the technologies like Radio Frequency Identification (RFID) and networking used for the optimization of inventory. The paper als
o describes the software solutions available for achieving the same. It concludes by giving a few examples where inventory optimization has been successfully implemented. Inventory Models
The hexagon model was developed due to the need to structure day-to-day work, reduce headcount and other inventory costs and improve customer satisfaction.In the first phase, operation strategies were established in alignment with inte-rnal customers. Later, continuous improvement plans and business continuity pl-ans were added. The five strategies used were: forecasting future consumption,setting financial targets to
minimize inventory costs, preparing daily reports to monitor inventory operational performance,studying critical success indicators to track the accomplishments, to form inventory strategic objectives and inventor-y health and operating strategies. The hexagon model is a combination of two triangular structures (Figure 1).
The upper triangle focuses on the soft management of human resources, customer orientation and supplier relations; the lower focuses on the execution of inventory plans with their success criteria, continuous improvement methodology and business continuity plans.
第四纪冰川The inventory indicators are: total inventory value, availability of spares, days of inventory, cost of inventory, cost saving and cash saving output expen-diture and quality improvement. The hexagon model combines the elements of the people involved in managing inventory with operational excellence (Figur2).
Managing inventory with operational excellence was achieved by reducing the number of employees in the material department, changing the mix of peo-ple skills such as introducing engineering into the department structure and reducing the cost of ownership of the material department to the operation that it supports.
Normally, this is implemented with reduction in headcount of material department, having less people with engineering skills in the department. Operation results include, improvement in raw material supply line quality indicators, competitive days of inventory and improved and stabilized spares availability. And the financial results include, increase in cost savings and reduced cost of inventory. It can be established by outsourcing some of the inventory functions as required. The level of efficiency of the inventory managed can be measured to a specific risk level, changing requirements or changes in the environment.
Just-In-Time (JIT)
Just-in-time (JIT) inventory system is a concept developed by the Japanese, wherein, the suppliers deliver the materials to the factory JIT for their processing, eliminating the need for storage and retrieval. The rate of output and the rate of supply of inputs are synchronized, to manage a zero inventory.
The main benefits of JIT are: set up times are significantly reduced in the factory, the flow of goods from warehouse to shelves improves, employees who possess
multiple skills are utilized more efficiently, better consistency of scheduling and consistency of employee work hours, increased emphasis on supplier relationships and continuous round the clock supplies keeping workers productive and businesses focused on turnover.
And though a JIT system might even be a necessity, given the inventory demands of certain business types, its many advantages are realized only when some significant risks like delays in movement of goods over long distances are mitigated.
Vendor-Managed Inventory (VMI)
Vendor-Managed Inventory (VMI) is a planning and management system in which the vendor is resp
onsible for maintaining the customer’s inventory levels. VMI is defined as a process or mechanism where the supplier creates the purchase orders based on the demand information. VMI is a combination of e-commerce, software and people. It has resulted in the dramatic reduction of inventory across the supply chain. VMI is categorized in the real world as collaboration, automation and cost transference.
The main objectives of VMI are better, cheaper and faster transactions. In order to establish the VMI process, management commitment, data synchronization, setting up agreements, data exchange, ordering, invoice matching and measurement have to be undertaken. The benefits of VMI to an organization are reduction in inventory besides reduction of stock-outs and increase in customer satisfaction. Accurate information which is required for optimizing the supply chain is facilitated by efficient transfer of information. The concept of VMI would be successful only when there is trust between the organization and its suppliers as all the demand information is available to the suppliers which can be revealed to the competitors. VMI optimizes inventory in supply chain and reduces stock-outs by proper planning and centralized forecasting.
Consignment Model
Consignment inventory model is an extension of VMI where the vendor places inventory at the customer’s location while retaining ownership of the inventory. The consignment inventory model works best in the case of new and unproven products where there is a high degree of demand uncertainty, highly expensive products and service parts for critical equipment. The types of consignment inventory ownership
transfer models are: pay as sold during a pre-defined period, ownership changes after a pre-defined period, and order to order consignment.
The issues that the VMI and consignment inventory model encounter are cost of developing VMI system, invoicing problems, cash flow problems, Electronic Data Interchange (EDI) problems and obsolete stock.
Enabling Practices
The decision makers have to make prudent decisions on future course of action of a project relating to the following variables: Forecasting and Inventory Management, Inventory Management practices, Inventory Planning, Optimal purchase, Multichannel Inventory, Moving towards zero inventory.东芝as100
To improve inventory management for better forecasting, the 14 best practices that will most likely benefit business the most are:
•Synchronize promotions;
•Revamp the organizational structure;
•Take a longer view of item planning;
•Enforce vendor compliance;
•Track key inventory metrics;
•Select the right systems;
•Master the art of master scheduling;
•Adhere to exception reporting;
冶金材料•Identify lost demands; •Plan by assortment;
建筑
速写技法
•Track inbound receipts;
•Create coverage reports;
•Balance under stock/overstock; and
•Optimize SKUs.
This will leverage the retailer’s ability to buy larger quantities across all channels while buying only what is required for a specified period in order to manage risk in a better way. In most multichannel companies, inventory is the largest asset on the balance sheet, which means that their profitability will be determined to a large degree by the way they plan, forecast, and manage inventory (Curt Barry, 2007). They can
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