Breaking the cycle
The dangers of a ‘keep the boat afloat’ mindset in the factory. By Richard Lebovitz
Most manufacturers went into the spring of 2020 expecting ‘business as usual.’ Betting on high demand, companies built up inventory levels accordingly. But then Covid-19 hit and threw a wrench in supply chain plans – and the unsophisticated tools and spreadsheets historically relied on for inventory optimization couldn’t manage the subsequent influx of challenges.
The core issue: Manufacturers were left with too much obsolete inventory, and not enough of the right parts to meet the delivery demands of their customers. And companies had to manage these excess-inventory and critical-shortage challenges with a reduced on-site workforce due to furloughs and remote work mandates. Today, while many companies are selling and burning off the excess inventory back down, critical shortages and delivery issues persist. To ‘keep the boat afloat’ throughout the pandemic, many teams have felt forced to make quick, sometimes frazzled decisions to patch up any ‘leaks’ in their operations, quickly free up cash, and get products to customers. Unfortunately, the antiquated tools and processes used to guide these decisions aren’t cutting it anymore.
To survive in today’s complex environment, leading companies are rapidly adopting cloud-based technology to digitally transform their supply chains and quickly adjust to demand changes when disruption hits. These tools can combine advanced analytics and purpose-built workflows to help teams proactively manage inventory levels and collaborate better internally and with suppliers to prevent shortages and make more confident and effective decisions, especially when operating with a smaller team.
Where spreadsheets fall short
Most factories today are still managing millions of dollars’ worth of inventory with basic tools like Excel or custom business intelligence reports. But these tools have significant limitations – as brought to light by the global pandemic.
Performing inventory optimization in static spreadsheets, with data pulled from disparate systems, is often incomplete or inaccurate, forcing teams to make decisions based on bad information. Data in these tools is also inherently vulnerable to inaccuracies, both from unstandardized calculations and processes and the messy consolidation of disparate reports and systems. And with no real way of prioritizing what needs to be done immediately, or to hold people accountable for those tasks, when crisis hits, the boat often ‘sinks’—and fast. At best, these tools will show you how bad you are performing, but they do nothing to tell you how to improve.
Leading manufacturers understand static tools don’t enable the visibility and proactive decision-making required in today’s dynamic environment. Every team needs a clear view of the facts so they can collaborate in real time, quickly troubleshoot and prioritize actions, get tangible insight into the actions colleagues have taken, and more. It’s not enough for one person to look at a spreadsheet and assign out tasks and responsibilities based on best guesses. Factory teams are realizing the value of predictive and prescriptive analytics in helping them be decisive and confident in managing their inventory, so when disruption hits, they can act in a moment’s notice and limit the impact.
Establish operational command at every level
If Covid-19 has reminded us of anything, it’s that we should be prepared for sudden changes in demand and disruptions with suppliers at any given time. Some industries – such as medical devices and technology – saw exponential increases in demand due to pandemic impacts. Others, like aerospace, experienced substantial drops – in some cases tenfold decreases.
To boost resiliency, establish operational command, and enable the factory to ebb and flow to meet market needs – instead of continuously patching a leaky boat – every single team member should be able to anticipate and understand:
- Which products or materials could be at risk of a future shortage today, and a few weeks from now
- What’s causing a shortage, and how to address it to avoid disruption
- Where inventory may be in excess and how to prioritize the top actions to improve turns
- The Plan for Every Part to maximize delivery performance while minimizing excess inventory
The benefits of having this level of intelligence are impactful. It creates stronger supplier partnerships based on trust and credibility. It gives factory teams the knowledge of where to diversify suppliers and look to their other sites to maintain a steady stream of materials. And it helps manufacturers boost efficiency during a time where the industry is operating with fewer people while complexity continues to grow. Ultimately the ability to stock the factory with an optimal level of inventory cuts costs, preserves cash, and prevents shortages, while still meeting customer demand.
Stopping the leaky boat
One week you’re struggling with excess inventory, the next you could be facing a critical shortage. It can feel like as soon as you address one problem, another concern arises. This never-ending focus on ‘sealing the leaks’ prevents teams from working on strategic, high-value activities that are arguably even more critical during these uncertain and challenging times.
It’s time to break the cycle. With the right insights and technology, factory teams can understand the why behind a particular problem – such as bad data, a change in demand, an incorrect ordering policy, or a supplier performance issue – and quickly address the root cause instead of spending hours or days trying to figure it out. They know which problem to solve first, and what to prioritize right now, instead of getting lost in a sea of information. And they can develop an inventory optimization plan and strategy for the next several months, based on up-to-date predictions, where they’ll have the biggest impact on the business, their weekly goals, and more.
Putting the wind back in the sails
It’s time to ditch the ‘keep the boat afloat’ mindset when it comes to managing and optimizing factory inventory. By parting with outdated methods, companies can reshape the factory to be proactive and resilient. The new approach – centered on equipping teams with predictive insights and actions at their fingertips – enables the factory to put wind back in their sails and glide through whatever rough seas come its way
Richard Lebovitz is the founder and CEO of LeanDNA, the only purpose-built analytics platform for factory inventory management. This factory-first solution empowers supply chain professionals to dramatically reduce excess inventory, deliver on time, and establish operational command across their organizations, delighting customers and unlocking new business growth.
For more information about the Austin, Texas-based company, visit www.leandna.com.