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Vol 32 - No 03 - May 2006 Branch news: South West - Inventory Optimisation The South West Branch of the Institute of Operations management co-hosted an evening on Inventory Optimisation. The guest speaker was Professor. Dr. Hendrik Vanmalele from Mobius Business Design. The evening was attended by 15 delegates from across the region, who had made their way through some rather unpleasant snowy and cold weather conditions. Hendrik is internationally recognised for his in-depth expertise in supply chain management. He is also a part-time professor at the University of Ghent in Belgium. For the last 10 years he has been active in applying the most advanced Supply Chain concepts at companies such as Huntsman, Arcelor and Johnson & Johnson. The presentation was based around Inventory Optimisation, something of a dilemma this one for all organisations. What, where and when do we hold our inventory? It would obviously be nice for all of us to be able to have JIT and zero inventories and be involved in total lean practises but how do you manage these processes when you have a world that requires shorter lead times, shorter product life cycles, and changes in customer behaviour that expose inventories to greater and additional risks? The real answer is that it is not easy, but we need to make sure that we all get better if we want to survive in our own supply chains. The very enjoyable and interesting evening covered may topics during the two hour presentation. The misconceptions of holding inventory were something that stood out to me. Customer demand is in most cases the single most important source of uncertainty in any given supply chain. The forecast accuracy will have a big impact on our inventory levels and also success for our service levels. Next to this source, however, in most supply chains, you will find many other sources of uncertainty, requiring similar types of protective measures. The main objective of forecasting is to: But in any given case, it is the most important source of uncertainty that determines the required level of the safety investment. This will help to explain why research shows that within “The Average” company, up to 30% of Capital Tied Up can be put to more optimal use. To be able to move from a 96% service level to a 98% service level, it would mean for most organisations a move from 20% capital tied up to a 30% capital tied up. With this we then also obviously take on other risks in terms of more and bigger warehousing, the cost of moving and storing the inventory, the chance of inventory being damaged and the risks of obsolescence. Do we really need this extra capital tied up for another 2% service level target reached? This was just one point of many interesting discussions on a very enjoyable evening that certainly opened my eyes to scope for greater inventory optimisation. We rounded off with an excellent buffet and a chance to network with other members, something that we hope to see much more of in future for the SW branch. Paul Manley, MIOM Related Topics:
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