Lean Inventory

Lean supply chain management is challenging because so much happens outside the four walls. Time compression and inventory velocity are important in achieving end-to-end inventory speed. The benefits include higher inventory turns, less working capital, less cash burn, better cash flow, improved revenue yield maximization, and less write downs.
Inventory begins upstream where suppliers are and should flow.

1. Lean Inventory Doing It with a Dash of Reality for Retail Tom Craig LTD Management [email protected]

2. Purpose is to challenge traditional views

3. Agenda Lean Inventory— managing 2 parts How much you carry How fast you move it (Not about inventory optimization)

4. First How many of you are practicing Lean Inventory now? How is it going? For those who are not, why not?

5. Lean Roots in manufacturing “Value”--from the customers’ perspective Lean--often used inside the 4 walls of factory/DC More challenge with going outside 4 walls Even more challenge going international (aka, much sourcing is outside North America)

6. Some Lean Basics Reducing waste/add no value (for customer) Defects Overproduction Transportation Waiting Inventory Motion Processing

7. Inventory Accounting—inventory is an asset Accounting—too much inventory is an asset Lean—too much inventory is waste

8. Lean & Supply Chain Management Both based on pull Both do not like excess inventory Inventory should flow Yet everyone has DCs Check dust on boxes in DC

9. Inventory Too much is money tied up that could be used for other purposes

10. Inventory & Too Much Buffer against uncertainty—base vs safety stock Measures (inventory velocity) Turns Days of inventory Inventory Rich (in transit, DCs, stores) Impact of excess (& obsolete) inventory Millions $$$ for retail sector Missed opportunities

11. Too much Get lower landed cost Buying more to get lower price Shipping more to fill a container to get lower freight (or lower cost per whatever in container) Someone never wants to run out of inventory and not sell products (security blanket)

12. Too much Warehouse problems Takes up space Working around it Multi-echelon inventory Stops flow of inventory Where does it add value Creates redundant safety stock Clash—supply chain practice vs lean

13. The Real World of Lean Inventory

14. Some Reality Time issues External Internal Domestic vs global sourcing Length of import supply chain Longer the time, more uncertainty, more inventory

15. More Reality Complexity of import supply chain Up to 17 parties Supply chain and lean success starts on the inbound side Any one remember the West Coast ports disruption?

16. How do you manage a supply chain—and your business—with this?

17. Service Performance -Top 20 Carriers- - Remember-- you are buying a service Aggregate for Asia-Europe, Transpacific & Transatlantic Rolling 3-month average — Asia-Europe at 67% Transpacific at 52% Transatlantic at 59% Top Carriers for 3 months Maersk at 80% Hamburg-Sud at 75% Cosco at 70%

18. Service Performance Rolling 3-month average-- Asia-Europe at 58% Transpacific at 62% Transatlantic at 77% Top carriers for 3 months— Maersk at 80.4% Hamburg-Sud at 78.5% Cosco at 69.9%

19. What This Service Can Mean Increased uncertainty for planning Negative impact on operations & sales More inventories More capital tied up/less liquidity

20. And Now— Lean Inventory Practices

21. Inventory Velocity Move it through Should not sit How fast it moves (velocity) thru entire supply chain Not just when/after it has been received Base vs safety stock

22. First Have to start somewhere Regardless of what you do with lean Clean up your DCs Get rid of the obsolete and excess stuff Have inches of dust on them Have enough to sell for years or cannot sell Problems with write it off??

23. Inventory The warehouse is not a retirement home for old inventory.

24. Where to Start Which inventory and why and how? Not for every SKU Doing it--multiple actions needed for lean—not just one Segregation analysis Time compress Supplier performance Root cause(s)

25. Segregate First Identify and assess lean potential of items A vs B vs C Product portfolio Brand vs private label Seasonal vs Year-round Supplier More than 1 cut/segmentation

26. Data Possibilities --SKU-- Product category Value/contribution— Revenue Profit Cost Sales—dollars and units On hand inventory—dollars and units Turns / Days on hand Number of times for restock— For regional DCs to warehouses Stores restocked Restock cycle times Internal External

27. Data Demand variability Forecasting accuracy Product life cycle Supplier Replenishment cycle time— Internal External--supplier and transport (order placement to door steps) Length Reliability Number of replenishments

28. Segregate Can expand into supply chain segmentation Gives focus and priority Way to deal with the noise Emails/calls/meetings that divert you from managing operations/inventory Offer no value from a lean view--waste

29. Compress Time Reduce uncertainty Shorten replenishment cycle Value Stream Mapping—lean tool Picture process/steps in key product moves from suppliers to DCs Show times for each step Internal and external

30. Compress--More Think of velocity and turns like this— Inventory turns is how often your firm gets “paid” Would you want to get paid 3.4 times a year Then why are 3.4 turns/year okay Design lean process Key items Seasonal New products?!

31. Compress Assess— Product supply chain Information supply chain Internal—planning cycle time/S&OP Cross dock at DCs

32. Time Note with import supply chain— Begins with purchase order Transport is derivative of PO & supplier performance Import transport Container line performance vagaries Align key items with faster transit carrier options Align key items with most reliable carriers Cross-dock at ports (the flow of inventory)

33. Time Integrated process Horizontal process over vertical organization Integrated technology Not just WMS or track-and-trace Emphasis on inbound side of supply chain

34. Supplier Performance Perfect order— delivered complete, accurate, and on-time Includes logistics service providers Collaboration with key suppliers & logistics service providers Quality—product and service Lead times

35. Suppliers Reliability Better link demand/demand planning with replenishment/buying Move upstream--collaboration on key products/suppliers and their practices and their upstream supply chains!!!!!

36. Real Supply Chain Is no single supply chain Are supply chains within supply chains Move upstream—natural extension for supply chain management and lean Compress time Take integration (process and technology) to new level

37. Root Causes The “why” of excess inventory? Cannot backslide Identify root cause(s) for excess inventory Correct Implement warning system if excesses start to creep back

38. Warning Will Robinson Lean inventory—works best as part of a lean supply chain program / not as a standalone No quick fix/silver bullets—no “you just”

39. And What Else Is Happening New e-commerce Immediacy Driven by new supply chain Multichannel

40. Old vs New E-commerce Immediacy Delivery within 48 hours of order placement It is about the customer Same old-same old supply chain Web site Ship orders UPS and FedEx dim pricing!

41. 45

42. And if that were not enough

43. Multichannel Vs the urge to increase inventory Vs the idea of allocating inventory per sales channel Vs Lean Inventory

44. InventoryVelocity 2 New = Immediacy Expand past B2C and B2B E-commerce Will spread— Across channels Across markets Across industries Across the world

45. Network Analysis Optimize warehouse locations How current with present business How viable with growth plans How viable with future e-commerce and multichannel programs Increase velocity Right places to position inventory

46. New Supply Chain Management Drive Immediacy Inventory positioning Focus on service No more one-size-fits-all supply chain And more Blue Ocean Strategy Using New Supply Chain Management

47. All these changes should not result in

48. A comment Much talk about the last-mile delivery Last mile delivery--tip of the iceberg Using the old supply chain and fixating on the "last mile" will not deliver the results customers want. New supply chain

49. It Is Coming