Lean Inventory LTD

Lean Inventory

Doing It with a Dash of Reality for Retail

Tom Craig

LTD Management

[email protected]

Purpose is to challenge

traditional views

Agenda

Lean

Inventory— managing 2 parts

How much you carry

How fast you move it

(Not about inventory optimization)

First

How many of you are practicing Lean Inventory now?

How is it going?

For those who are not, why not?

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)

Some Lean Basics

Reducing waste/add no value (for customer)

Defects

Overproduction

Transportation

Waiting

Inventory

Motion

Processing

Inventory

Accounting—inventory is

an asset

Accounting—too much

inventory is an asset

Lean—too much inventory

is waste

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

Inventory

Too much is money tied up that could be

used for other purposes

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

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)

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

The Real World of Lean Inventory

Some Reality

Time issues

External

Internal

Domestic vs global sourcing

Length of import supply chain

Longer the time, more uncertainty, more inventory

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?

How do you manage a supply

chain—and your business—with this?

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%

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%

What This Service Can Mean

Increased uncertainty for planning

Negative impact on operations & sales

More inventories

More capital tied up/less liquidity

And Now—

Lean Inventory Practices

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

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??

Inventory

The warehouse is not a retirement

home for old inventory.

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)

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

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

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

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

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

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?!

Compress

Assess—

Product supply chain

Information supply chain

Internal—planning cycle time/S&OP

Cross dock at DCs

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)

Time

Integrated process

Horizontal process over vertical organization

Integrated technology

Not just WMS or track-and-trace

Emphasis on inbound side of supply chain

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

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!!!!!

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

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

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”

And What Else Is Happening

New e-commerce

Immediacy

Driven by new supply chain

Multichannel

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!

45

And if that were not enough

Multichannel

Vs the urge to increase

inventory

Vs the idea of allocating

inventory per sales

channel

Vs Lean Inventory

InventoryVelocity2

New = Immediacy

Expand past B2C and B2B E-commerce

Will spread—

Across channels

Across markets

Across industries

Across the world

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

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

All these changes should not result

in

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

It Is Coming