Logistics

Inventory reduction / working capital improvement

Excess inventories can be found all along the industry supply chain pointing to imbalances between demand and supply and restricted visibility. The challenge on the one hand is to reduce the volume of inventory held by all partners in the supply chain, and on the other hand, to determine the right level for each inventory position.

The basics of supply chain management are not new, yet companies still perform quite differently against the target of inventory optimization. Missing inventory management methodologies, a lack of information, as well as dispersed and uncoordinated roles and responsibilities have a significant negative impact on inventory levels of raw material, semi-finished goods, finished goods and spare parts. Lack of coordination, information and trust between suppliers and customers lead to double inventory positions in the chain.

Most companies have recognized the importance of this topic, yet employ different levels of sophistication within the industry with only a few companies achieving the highest level:

"Standard" — taking minimum and maximum inventory levels, reorder points and economic order quantities into account
"Advanced" — cross functional integration of available information such as stock levels, production and sales data
"Best in class" — integrating supply chain information from all players — a holistic view from supplier to customer into inventory management procedures

Clear definition of target inventory service levels, material segmentation, integration of demand forecasting data and the set-up of meaningful supply chain metrics are crucial elements to achieve "best in class" inventory management.

StepChange Consulting can support you in achieving the highest level of sophistication in the inventory management process.

Distribution network optimization

Customer demand for ever higher service levels, such as shorter cycle times, smaller order sizes and increasing product ranges, has led to spiraling complexity in the distribution networks over the past years. Additional warehouses, distribution centers and transport routes have been established to satisfy the growing customer requirements.

Traditional wisdom has been to locate storage facilities near each cluster of important customers so as to provide the agreed upon service levels. Over time, this has resulted in a proliferation of storage facilities and excess inventory. Company distribution networks are often the result of historic growth driven by local sites or even by individual customer service levels.

The missing holistic view of the company's distribution network creates redundancies and inefficiencies. Isolated optimization efforts to improve transport routes, increase truck utilizations and minimize inventory levels on a single site basis does not necessarily fit with an optimized warehousing and distribution network for the whole corporation. Individually optimized distribution networks can lead to higher logistics costs for the whole system. Site or divisionally optimized networks typically carry higher inventory levels than networks optimized on a company level.

A review of the existing distribution network should be based on guaranteed service levels and the total demand and supply information for the whole corporation. A comprehensive view on the Supply Chain and total Supply Chain costs per customer is necessary to align product portfolio, product allocation, selection of transport means, and route planning to the appropriate distribution type (e.g. warehouses, cross-docking locations, overnight deliveries, etc.).

Optimization on a group level will result in reduced working capital through consolidated inventories, lower transport rates through consolidation of spend, increased truck utilization enabled by combined shipments, and improved reliability and delivery accuracy perceived as increased customer-service levels.

Significant changes in the warehousing and distribution landscape typically impact organizational and performance measurement areas as most decision makers are acting from a local perspective and are measured against local performance and optimization. An alignment of the performance system is required in order to achieve the desired benefit.