February 21, 2017

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Key to Inventory Optimizing in Service Parts Planning

A common challenge faced by most of the organization is the level of inventory to carry to meet a certain service level. In the process organization come across multiple challenges like – what inventory to carry, how much to carry, where to stock it,  how much buffer stock is needed, etc. These challenges seem to grow in magnitude with competition, global sourcing, and higher customer service demand.

In today’s world where every customer and sale matters, no organization wants to be in a position where they are not able to meet the demand for lack of stock as the saying goes – “you can’t sell from an empty wagon!”. With this experience organization might be paying the price in carrying costs, obsolescence cost and working capital tied up to the inventory. Achieving the balance between “enough and too much” is something that all organizations aspire for in their supply chain. As noted by Aberdeen Group 66% of the companies across the globe face the need to reduce inventory costs to have a direct impact on their profit margins followed by 51% of them feel the need to improve service levels, thus highlighting the need for an optimized or balanced inventory.

The key to able to make headway would be in defining a framework on how to handle and stock inventory at various nodes of the network.

  1. Defining your network structure – one of the important factors to be considered is how much of centralized or decentralized planning is needed to be able to achieve the desired service and inventory levels. Having a central distribution channel (DC) and allowing a certain percentage of demand pass up from forward locations will help to reduce the lead time and to increase the availability of stock. An integrated multi-indenture structure of spare parts within an asset can be used to control inventory
  2. Part classification and stocking policies – parts availability to minimize an equipment downtime or support an efficient flow for maintenance determine the criticality of the part. As one of the aware parts come with varying attributes and this can be one of the ways to determine and group parts for planning. Grouping parts based on criticality, cost, demand, lead time etc can be the foundation for planning by applying various business rules or stocking policies across locations. It’s about not treating every part the same but help to identify the higher returns on every dollar investment on a part
  3. Replenishment Policy Parameters– To enable economies of scale in replenishment the model should be able to support various business rules for critical and non-critical parts. Having a multi-echelon, multi indenture optimizing capability will help address the overall system optimization by helping to have a balanced inventory approach. Enabling emergency depots and opening transit lanes for allocation and transhipments will further enhance supply chain for parts availability and returns. Replenishment strategies can help companies stock very little for finished goods if they could assemble and configure to order type demand through the better insight of the forecast.

They key for better optimizing of inventory would be to look at a tool that addresses –

  1. Improve demand forecast accuracy
  2. Improve inventory modeling, setting safety stock and handle the inventory mix for optimizing
  3. A tool that can help build flexible replenishment strategies