Season Two, Episode Three
Metric Wars – Beginner Level
Once again, I arrived at work to find that we are out of a raw material. Not the same raw material as last week, a different one this time. My boss pulls me into his office and says, “You’ve got to get control of the part shortages. This just can’t continue to happen.”
I am desperate. What I am doing is what supply chain professionals have done for years. I react to my MRP reports, combine those with my judgement and create an action list to make sure I account for the needed inventory. I am so close to the solution that I can taste it. Somehow, it remains just out of reach. I add safety stock on the parts I run out of and cycle count to build inventory trust.
Later in that same day, my boss pulls me into his office again. This time he has a message from our General Manager and Controller. “You’ve got to reduce our inventory. The total value is much too high for our business. Too much working capital is tied up in inventory. Reduce it by 15%.” They only failed to add, “Or else!”
Now, in one day, I have the same person telling me to fix the shortages at the same time I am supposed to reduce the inventory. My job, should I choose to accept it, is to figure out how I can do both.
My first thought is, “How do I know which parts I have too little of and which parts I have too much of?” If I knew that, I could figure out which parts to buy and which parts to bleed down. It sounds crazy, but the list of parts to reduce that is suggested, is the same list of parts that I am currently expediting.
My second thought is, “If what I’m doing isn’t working, then I had better find a new way of thinking.” It is hard to think outside the box, when you are packed tightly in that box. I need to search for new information, a new methodology perhaps. How are employees of other companies finding a focus on the right actions?
What I need, is a way to establish a dynamic target inventory level for strategic parts and then a method of replenishment that aims to maintain that inventory level. If I could establish that target inventory level, which changes as demand and lead time change, then daily I could compare my current on hand levels to the target and know if I am in trouble or not. And perhaps a slightly different view of that same inventory position will properly tell me when to place orders so my pipeline will flow smoothly.
Flow. Is that the key? I read about something called Demand Driven MRP that focuses on Flow. By focusing on flow, we naturally keep costs under control. Our company has a goal of reducing cash to cash cycle time, which is accomplished by focusing on improving flow. And I have seen that while we focus on cutting costs, we instead increase cost because we are not accounting for it properly.
Demand Driven MRP results in having the right amount of inventory for strategic parts. Because it creates decoupling points that absorb the variability of the bullwhip effect, I have less surprises regarding inventory. And if I focus on having the right inventory, I can eliminate shortages by only buying the parts I need. At the same time, I can allow the excess inventory to reach its proper level.
And so, young Jedi, that is how I solved the dilemma of eliminating shortages and reducing overall inventory at the same time. Next lesson, Metric Wars – Intermediate Level.
John Melbye, DDPP, DDLP, CSCP