Is more better?

I spent a morning this past weekend with a fellow Supply Chain Manager who recently arrived at his organization here in Chicago.  He and I commiserated about the vast amounts of capital tied up in inventory (and although my organization's inventory is largely non-perishable, his inventory was not and the clock was ticking on some of it).

It reminds me of a visit this past Fall to a vendor that has a significant business line building ASRS's (automated storage and retrieval systems - essentially very large, very costly warehouses) and the software that supports them.  Some of these warehouses are certainly necessary (a recent install of theirs was for storing library books at a major research library - if you don't believe that is a 'good' type of inventory you may want to read Nicholson Baker's Double Fold, a compelling book about the deacquisitioning effort that our libraries have undertaken).

As I wandered through this vendor's offices, conference rooms and rest rooms and was awed but the beauty of their architectural and engineering drawings of their installations (yes, the artwork in the restrooms consists of very nicely framed engineering drawings) I was also thinking about the dollars invested in the storage of inventory.  Many of these installations were built for storing tens of thousands of pallets and represent a significant investment to store inventory, which itself likely represented a significant investment on the balance sheet.  In other words, those drawings represented certainly tens and likely hundreds of millions of dollars of inventory investment.

The APICS Body of Knowledge tells us that the only reason to hold inventory is when doing so is less costly than not holding the inventory.  I question whether the business cases used to justify the construction of those many ASRS's hold water today.  Can the toolset of the Supply Chain Manager - Lean, JIT, Agile Manufacturing, substituting information for inventory - eliminate some of the inventory in these warehouses or even eliminate the need for the warehouse entirely?  Very likely.

My friend's inventory challenge was interesting in that as the product aged it could no longer be used for it's original, intended use and had to be downgraded for less value-added uses.  Although my organization's inventory is not perishable (at least not on the type of timeline that my friend faces) we still have opportunities to reduce the accumulation of inventory and always will - the Supply Chain Manager is on an never ending quest to balance minimal inventory investment and customer service.

Cutting your Inventory and Postponement

My local Costco added retail gasoline sales recently and I noticed that they carry only 87- and 93- octane (regular and premium), as opposed to most service stations that carry 3 grades of gas (or petrol for my friends on the other side of the pond).  I usually purchase premium for my own car (and regular whenever I have a rental) - I've never seen any statistics on it but it would be interesting to see what percentage of sales each of the typical 3 grades represent.

In addition to reducing the inventory items Costco needs to monitor and replenish they have reduced by 50% the number of underground tanks they install and maintain.  I'm not very familiar with gasoline retailing but there must be several other areas of payback that I'm missing.  I wonder why other gas retailers haven't followed suit.

I  noticed another major company undertaking a new inventory strategy recently.  Coca Cola is rolling out new soft drink dispensers that have 106 flavors, which you would think would cause their inventory to surge.  That's likely not the case as they are using a strategy of Postponement where the final mixing of recipe/parts is done as late as possible (in this case, literally when the consumer selects "lime diet coke" at the dispenser).  They can use generic parts for several final products - in this case that same lime flavoring is used for Coke, Coke One, Sprite etc.   I've heard that the machines even send electronic alerts when they need service or flavor refills.  If that's the case it still needs some fine tuning as several of the flavors are not available at my local lunch place more often than not .

Have you seen any interesting examples of inventory strategies recently?  Please let me know in the comments below.

Changing Priorities Ahead

(thanks to R/DV/RS for the photo) 

Yes, priorities will be changing in 2012.  No surprise there as two constants in business are change and the ever increasing pace of change - if you're not capably dealing today with Change tomorrow will only be more challenging as Change will be coming at you faster.  With Change comes changing priorities - we identify new opportunities, resource availability changes, markets open and markets even collapse - in order to react to these pressures our priorities need to change.  

As Supply Chain Managers we need to be at the forefront of identifying these opportunities and play a key role in setting priorities for our organization.  Some of you may know that I'm a student of Ashtanga Yoga.  During the Holiday I was able to take several classes with instructors I had never practiced with before.  Being able to view the asanas in a new light and pick up pointers from different instructors was very valuable in bringing my practice to a new level.  I recently read Steven Johnson's "Where Good Ideas Come From" (see his Ted talk) and have been thinking about increasing my opportunities for gathering innovative ideas and bringing my Supply Chain 'practice' to a new level.

I am attending several upcoming events that focus on Supply Chain and will have Supply Chain Thought Leaders from various industry verticals.  I'm hoping to gain great ideas for my organization at these events:

14th Annual Logistics CIO & Supply Chain Technology Forum 

The Aberdeen Group 2012 Supply Chain Management Summit

I'm also participating in an instructor review session of the revised APICS CSCP materials over four consecutive Saturdays.  This is a great opportunity to cover the Certified Supply Chain Professional body of knowledge with a group of instructor/practicioners prior to teaching it in the classroom.

I believe these events will give me a good mix of industry and academic thought leadership but I'm always looking for good ideas.  Where are you looking to gather good ideas in 2012?  Please let me know in the comment section below.

Visualizing Supply Chain Ideas

As a Strategic Thinker I find that I am usually ready to start implementing an idea when others still need to understand it and be sold on it.  It's not always easy (and previously hasn't been inexpensive) to visualize Supply Chain data but being able to draw that picture is one of the best ways to share your ideas with others inside and outside of the Supply Chain expert community.  In SC that picture is often going to be a map (such as when working on network design, customer, manufacturing or warehouse locations, distribution data, etc.)  Fortunately there are some promising new mapping tools available that Supply Chain Managers may want to investigate.

The past few weeks I've been test driving BatchGeo and Google Earth (which is also available in a Pro version that offers some significant enhancements for the business user at a relatively cost) to visualize SC data.  Although they both have their limits they are useful for creating maps and presenting data in new ways.  There are quite a few other tools out there that I haven't tried yet (please post in the comments below if you've found any that have been useful for your analysis).

What I'm really interested in is a tool that would allow me to create visuals that portray data as it changes over time (such as the Gapminder tool that Hans Rosling has created for visualizing population and wealth data).  These are now available embedded within traditional Business Intelligence tools (which are expensive and often require a lengthy and costly implementation period).  Let me know if you've found any tools particularly useful for your analysis.

Supply Chain and Data Visibility

As Supply Chain Managers we are always working to improve our data visibility - the ease with which those within our organization can quickly obtain the information they need to support good decision making.  That data visibility may have a downside.  Two supply chain managers are in the news today giving supply chain management the type of publicity the profession doesn't want (in spite of what P.T. Barnum said).  This is a good reminder that, as Supply Chain Managers, we often have access to the type of data that must be closely guarded (and could even land us in jail if we fail to do so).

I find that I learn a great deal from sharing my business challenges with others (whether in a formal setting such as a classroom or presentation hall) or informal, such as a round table or lunch.  I believe The APICS Member Code of Ethics provides a good framework for how to share that information (and how to hold in confidence information that others share with me).

Midnight Shopping and Supply Chain Management

I heard a very interesting story on NPR several weeks ago.  Wal-Mart noticed a spike in sales on the first day (perhaps even the first hour) of the month and this story attributes at least some of that demand to government aid funds not being available until just after midnight on the first of the month.  Wal-Mart even changed their stocking patterns to accommodate the demand for larger packs of items earlier in the month.

Leaving aside the politics of this issue and viewing it as strictly a supply chain issue I thought about the bullwhip effect this has on the supply chain.

It's also interesting to note that Wal-Mart has taken strong actions to level demand (through their "every day low prices" for one) to capture the resulting supply chain savings that this yields.  Here the timing of the government aid distribution is counteracting their efforts and even making Wal-Mart change their stocking patterns.

Perhaps distributing these funds weekly rather than monthly would aid everyone involved - recipients would be able to hold less inventory (anyone with kids would understand the advantage of this - kids frequently 'burn out" on certain foods), Wal-Mart would have a more level demand pattern and resulting lower inventory, etc.

Let me know of other examples where government action (or inaction) is negatively impacting the effectiveness of an organization's supply chain.  

Supply Chain and Nonprofit Effectiveness

Several months ago I read this editorial regarding the work of a Chicago-based nonprofit called World Bicycle Relief (WBR).  As an avid bicyclist I found this interesting and as a supply chain manager I was fascinated - whether they were specifically thinking "supply chain design" when developing this program or just good business sense it is clear that they used good supply chain principles - local sourcing, availability of spare parts, design for manufacture (and repair!).


I was not surprised when this week I heard that Barrons ranked them #12 on their list of 25 Best Givers, a ranking of donor impact.  It is clear that good supply chain principles can improve the bottom line for the organization whether they are a for-profit business or a nonprofit organization.  (I should add that my bicycle racing team, xxxracing.org, is a supporter of WBR and I have indirectly donated to WBR through my team; I plan to assist them further in 2011).

Please let me know of other examples of good supply chain principles deployed by nonprofit organizations and their positive impact on the triple bottom line.