inventory management for a global supply...

E-Book

Inventory management for a

global supply chain

To respond to the opportunities—and challenges—of globalization,

manufacturers are increasingly looking to IT solutions that provide

standardization and visibility into the goods and materials that flow

through their production facilities and supply chains. This eBook

provides the buying tips and implementation advice manufacturers

need to master inventory in the emerging global supply chain.

Plus:

Understand the benefits of inventory optimization software

Learn how to choose between RFID, barcoding, and voice

Read how cloud networks can provide global inventory visibility

See why some companies are reconsidering vendor managed

inventory (VMI)

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Inventory management for a global supply chain

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E-Book

Inventory management for a global

supply chain

Table of Contents

Benefits of inventory optimization software can be “huge,” says analyst

Is vendor-managed inventory making a comeback?

Cloud enables global inventory management

Choose warehouse data management technology with care, experts say

Resources from Apriso



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Benefits of inventory optimization software can be “huge,” says analyst

By Todd Morrison, News and Features Editor, SearchManufacturingERP.com

Manufacturers are looking to inventory optimization software at a time when many are short

on working capital, and efficient supply chains are more important than ever. To shed some

light on this trend, SearchManufacturingERP.com spoke with Lora Cecere, an expert in

supply chain management (SCM) and partner with Altimeter Group, a consulting firm based

in San Mateo, Calif.

What is inventory optimization, and how can it be accomplished through the use of

software applications?

Lora Cecere: Inventory optimization is essentially the use of algorithms to determine a

good level of inventory.

Software for inventory optimization comes in two types. One helps you with what is the

right level of inventory. Basically, it applies optimization to look at demand variability and

supply variability, and be able to address what‘s the right level of inventory -- how much

and where.

The second type helps you with the form and function of inventory. Form is raw materials,

semifinished goods and finished goods. Function is cycle stocks, safety stocks and seasonal

stock.

Who’s doing it, and how widespread is it among manufacturers?

Cecere: If you go with my definition -- the goal of optimization is to determine inventory --

90% [of manufacturers] are doing it because DRP [distribution requirements planning]

would fall within that definition. Inventory optimization, which layers on top of DRP, is

deeper optimization. That‘s being used by about 35% of manufacturers.



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Does inventory optimization lend itself to certain types of manufacturers?

Cecere: Yes, companies that have expensive inventory, or perishable inventory, short

lifecycles --anything that causes inventory pain. Companies that are sophisticated enough

to be sensitive to working capital.

What are the various types of inventory management problems that can be

addressed or solved through inventory optimization?

Cecere: Postponement -- where is the right place for me to postpone? Postponement is

where I‘m going to hold something as an intermediate. My favorite example of

postponement is a paint store, where they hold everything as like white paint, and then

they add colors at the counter. That‘s postponement. People that can do postponement --

hold things as an intermediate -- and add the flavors, the colors, at the last minute get

flexibility. So, inventory optimization helps with postponement: What should I postpone?

How should I postpone? These are long supply chains, so they could postpone at many

points on the supply chain, or they could not postpone at all. They could postpone in some

factories and not in others. It also helps with multiple-company decisions -- who should hold

inventory and where.

If it’s done right, what are the benefits of using inventory optimization software?

Cecere: Let‘s talk about ―done right.‖ It requires a fairly sophisticated user, and it requires

an organization that cares about cash flow. But if it‘s done right, the impacts are huge --

20-30% reduction in [use of] working capital, 10-15% improvement in customer service.

What kinds of solutions are out there, and are they sold as standalone products or

embedded with other tools like demand planning suites, etc.?

Cecere: They come in all different flavors. Although most of them are standalone solutions,

some of them have started to become parts of suites as they‘ve been purchased by other

companies.



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What features should potential users be looking for?

Cecere: [Companies] should be looking at the depth of postponement and the model‘s

ability to handle manufacturing versus distribution.

What are the biggest organizational or technical challenges that manufacturers

should know about before implementing inventory optimization software?

Cecere: They‘ve got to have planners that know how to use it. The biggest barrier is

planning expertise. The second barrier is the ability for the management team to focus on

working capital. Data quality can be another, but the more important issues are the change-

management issues. It takes a pretty sophisticated company to be fixated on working

capital. Most companies are focused on vertical orientation, reduction of costs, asset

utilization. The best supply chains have a balance between working capital and asset

utilization. A very vertical orientation will get you out of balance.

Luxottica Leverages 20/20 Vision for Higher Quality.

Play Video Case Study

Apriso is a software company dedicated to providing its manufacturing customers a competitive advantage. It does so by enabling organizations to quickly and easily adjust the execution of manufacturing operations in response to market changes and unexpected events. Apriso’s FlexNet platform provides visibility, adaptability and real-time control of manufacturing operations across the enterprise and supply chain network.

For additional information, please contact us at www.apriso.com.

Apriso | 301 East Ocean Boulevard, Suite 1200, Long Beach, California 90802 Toll Free: 888.400.7587

Video Case Study

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Is vendor-managed inventory making a comeback?


Is vendor-managed inventory (VMI) on its way back? It depends on whom you ask.

Touted as a more efficient approach to order fulfillment and inventory management, VMI fell

out of favor years ago, according to analysts, because of unreal expectations over what it

could actually do.

―The Internet revolution created a fair amount of hype over VMI,‖ said Paul Lord, an analyst

with the Stamford, Conn.-based research firm Gartner Inc. ―Expectations were unrealistic

and didn‘t align with the capabilities.‖

Security and data-integrity issues, inconsistent core functionality and a lack of maturity in

organizations‘ early-stage planning also caused many to walk away from VMI

implementation, according to a recent Gartner report.

VMI is a technique for electronically connecting trading partners to facilitate planning and

execution of supply chain processes and can involve one-to-one relationships or a larger

network, according to Gartner. In VMI, the manufacturer – not the customer – manages

the customer‘s inventory. It has five major components: visibility, connectivity, demand

planning, inventory planning, replenishment planning, and performance measurement and

analytics.

In its report, titled ―The Resurgence of Vendor-Managed Inventory: A Landscape,‖ Gartner

states that retailers have turned back to VMI in part because the recession has caused them

to cut back on the staff to do the work. Manufacturers and brand owners are looking to VMI

for better control over order quantity and timing and the efficiencies it can bring.

Lora Cecere, a partner with the San Mateo, Calif. -based consulting firm Altimeter Group,

agreed VMI has made a comeback – to a degree. ―The answer is yes and no,‖ Cecere said.

A lot of organizations that say they do VMI aren‘t engaged in ―real‖ VMI, she said. Real VMI

occurs when the manufacturer is responsible for the inventory and the orders. ―What we‘ve



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really had is more of what I‘m going to call ‗lip service‘ to VMI,‖ Cecere said. ―‘Give me

recommendations on inventory and replenishment, but I‘ll make the final decisions,‘ says

the retailer, but what they‘re really getting is free planning.‖

For example, companies like Wal-Mart Stores Inc. often use VMI to ―offload‖ the labor

associated with planning, and instead rely on the manufacturer in an effort to reduce costs

and shift planning onto someone else, Cecere said. Wal-Mart isn‘t the only one. Smaller

grocery chains have gone to manufacturers like Procter & Gamble and said, ―You‘re a bigger

company. Please plan for me.‖

Manufacturers that make products with short cycle times and high volumes are also using

VMI, according to Cecere. That includes seasonal products like cold medicines and suntan

products, where demand is high but unpredictable.

What are my VMI options?

Traditional VMI systems were built around extending core supply chain planning functions

and installed on the premises, according to Gartner. This meant creating a new database to

support customer account data or passing data back to the supply chain planning

application. Today, however, there are many more Web-enabled applications that give

customers a wider variety of options.

Cecere recommends buying Software as a Service as opposed to on-premise versions.

―Things change so much, and I would be looking at a provider that has flexibility,‖ she said.

Others had a different take.

David Mackail, who oversees the European VMI operations for a global footwear company

based in the Pacific Northwest, said though it‘s uncommon for apparel companies to use

VMI, it‘s necessary in his market.

―In Europe, we have a lot of smaller customers,‖ Mackail said. ―Once you get outside of top

20 [customers], the supply chain capabilities are not very good. They‘re stuck in the 1970s.



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Those kinds of customers want VMI because they don‘t have the capability to flow the

product to the stores themselves.‖

Mackail‘s company uses a stand-alone, on-premise VMI application that links up to sales

and operations systems. ―The replenishment algorithms are very simple, but what‘s really

important is the analytical tools that come with the software,‖ he said. ―You have to be able

to have the right tools and the right KPIs [key performance indicators] and the right

analytics.‖

What’s next for VMI?

Cecere said manufacturers and customers who are interested in VMI implementation should

first ask themselves who ―owns‖ the inventory and who owns the order. Once they begin

executing their plan, they need to have an idea of what success looks like, Cecere said.

This initial period should take about six months, she said. It‘s enough time to clean the

data, establish the system, and determine if inventory is indeed being lowered, shelf

position is improving, and the two sides are working more efficiently and more closely than

before.



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Cloud enables global inventory management

By David Essex, Site and News Editor, SearchManufacturingERP.com

Inventory management becomes a global problem when manufacturers get their raw

materials or subassemblies from overseas. But before they can manage that inventory, they

need know where it is.

They want visibility -- an overused buzzword in domestic supply chains that suddenly

sounds fresh and meaningful, especially when the inventory is as likely to be moving on a

freighter in the Pacific or sitting in Long Beach customs as it is to be in the warehouse down

the street. And as more companies position their production and distribution overseas to be

closer to emerging markets, the need for tight, transparent supply chains only intensifies.

―With the globalization of logistics and longer, more complex supply chains, inventory

management becomes more critical,‖ said Evan Armstrong, president of Armstrong &

Associates Inc., a Milwaukee-based analyst firm that specializes in logistics.

The answer, according to Armstrong, most often comes from outsourcing the entire problem

to a third-party logistics provider (3PL) that specializes in global shipping.

―It‘s important to really align yourself with providers that have significant capabilities on a

global basis,‖ he said. ―A lot of them manage the local providers and work with them as a

lead logistics provider.‖

Some of these lead logistics providers function as so-called 4PLs -- essentially supply chain

integrators that bring together 3PLs and customers while providing support services like

contract management and inventory visibility.

Several supply chain management applications are involved in tracking and managing the

inventory, according to Armstrong. Most global 3PLs have their own proprietary systems for

providing customers with inventory visibility, often piecing them together from third-party

transportation management system (TMS) and warehouse management system (WMS)

software.



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―Every major 3PL has some kind of integrated system suite like that,‖ he said. ―You can get

down to the item level with these systems, usually.‖

A few 3PLs can even take over functions normally performed by manufacturers, such as

demand planning and kitting of related products.

What if you have your own WMS and TMS? ―You might just tell your provider to use your

system,‖ Armstrong said. ―But 3PLs can save more money with their system.‖

A smaller number of providers specialize in just the computer networks and don‘t own a

single truck or warehouse. Their goal is to be a single source of applications and data for all

the major steps in global logistics, including inventory, transportation and order

management, as well as compliance with international regulations.

Moving toward collaborative global inventory management

Analysts and vendors say these global logistics networks make it easier for manufacturers,

suppliers and 3PLs to work together to optimize the supply chain and reduce inventory

costs. Traceability of subassemblies and raw materials is another important driver of global

visibility into inventory.

―If you don‘t have that visibility, then you can‘t do any contingency planning or

workarounds if that component is in the critical path,‖ said Joseph Kemp, senior solutions

architect at Patni Americas Inc., a consulting firm based in Cambridge, Mass.

But companies must first overcome trust and integration issues to use the networks, said

Saverio Barbera, associate vice president for the supply chain practice at Patni Americas.

―You have to figure out how to relinquish the control,‖ Barbera said, adding that many

owners of top-tier ERP systems have the misconception that it‘s too expensive to push out

inventory data to their global suppliers.

Large, multinational manufacturers rely heavily on electronic data interchange (EDI) for

their inventory-related transactions. For smaller companies, cloud computing technologies



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like Software as a Service (SaaS) could help make global inventory visibility more

affordable.

―The mom and pops don‘t have EDI infrastructure,‖ Barbera said.

That makes it hard for them to get access to supplier network collaboration (SNC), a type of

network offered by major ERP vendors that lets suppliers and manufacturers share

information, including inventory data. Patni is working to convince the vendors to offer

cloud-based ―SCN lite‖ for easier access -- and as an ERP integrator for those same

companies, it stands to profit if the idea takes hold.

Barbera said his previous employer, the home-appliance maker Whirlpool Corp., uses just

such a cloud-based system to give its suppliers access through Web browsers.

Reaping the benefits of global trade

Inventory optimization, demand planning and other common methods for lowering

inventory costs don‘t work as well when goods sit in port awaiting customs clearance.

―If you have truly offshored your manufacturing, it‘s very hard to handle the regulatory

compliance,‖ Armstrong said. Manufacturers often turn to freight forwarders who specialize

in moving goods across borders and, like 3PLs, maintain their own information systems to

give customers real-time views into their inventory.

Other manufacturers use a SaaS global trade management (GTM) application to manage

security clearances and compliance with import and export regulations (see the sidebar).

How should manufacturing IT departments respond to the need for global inventory

management? ―It‘s important to be part of the team that helps do the selection for logistics

providers,‖ Armstrong said.

Armstrong also advised hopping on the bandwagon with manufacturers that are

consolidating their businesses on three or four 3PLs, which gives them more leverage and

makes IT‘s job easier.



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―Most manufacturers are going to have a lead logistics provider,‖ he said. ―The fewer the

number of providers, the fewer data sets you have to handle and the fewer the

integrations.‖



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Choose warehouse data management technology with care, experts say


RFID tags and barcodes are still the most common and effective warehouse management

systems for gaining real-time insight into a company‘s inventory control, but experts say

there are a number of things to consider when deciding which technology to use.

For example, it means not choosing RFID automatically when barcodes will suffice,

according to C. Dwight Klappich, an analyst with the Stamford, Conn.-based research firm,

Gartner Inc. ―If barcode‘s cheaper and easier, then barcode‘s the right thing,‖ Klappich said.

Why RFID is not always the answer

RFID, or radio-frequency identification, is the newer, more rapidly evolving technology, in

which information is transmitted wirelessly from a tag to a scanner, and then processed in a

database. RFID tags usually hold more information and can be read at much longer

distances than barcodes without requiring ―line of sight‖ between the tag and scanner.

Barcoding, on the other hand, is a generally more stable, predictable means of capturing

data that has been in use for nearly three decades. The barcodes themselves continue to

evolve, as in the case of two-dimensional (2D) barcodes, which can encode more

information in a smaller space.

Most of today‘s warehouse management system (WMS) software has the ability to manage

data captured with either technology.

RFID is not the end-all that some thought it would be in the technology‘s early years,

according to Klappich.

―If you look at the advent of RFID -- the advent of people talking about using that for

warehouse management -- it was really to save one more second in how fast you would be

able to scan a box,‖ Klappich said. ―It‘s lost luster, because people realize it‘s often just as

easy to scan a barcode as it is to have the RFID. Barcode works, and it‘s cheap.‖



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Choosing RFID over barcodes makes more sense with expensive products like plasma TVs,

computer servers and aerospace parts, where the cost of a tag is inconsequential compared

with the cost of the item, Klappich said. RFID also makes sense with items such as flooring

rolls, which are large and bulky and would need multiple barcodes, he said.

One of the other primary concerns with RFID is that it is more difficult to use than barcode

scanning, according to Bert Moore, director of communications and media relations for AIM

(Warrendale, Pa.), an association of automatic identification and mobility vendors.

―Even if the technology were plug-and-play, the implementation is not,‖ Moore said. If not

configured properly, RFID ―will give you useless information at the speed of light.‖

For one, users must survey their site for interference. Electrical devices like welding

equipment and conveyor motors can cause ―serious interference‖ with RFID readings, and

products that contain liquids or metal can interfere with the frequencies of the tags, which

also cannot be read around corners, he said.

Users also need to make sure the overall RFID configuration, as well as the tags

themselves, undergo rigorous testing. Companies should never design an RFID system

based on the spec sheet, Moore said. On paper, it may look as if a tag can be read from 20

feet away -- but that may only be in pristine environments. The more realistic scenario

might be closer to seven feet.

It‘s important to be realistic about RFID, Moore said. ―It‘s not the greatest thing since sliced

bread. It‘s just another tool.‖

Voice-directed warehouse management

While barcode scanning and RFID tags are tried-and-true warehouse management staples,

other alternatives, such as voice technology, are growing in popularity, Klappich said.

Voice technology allows workers to pick orders verbally by using a wireless, wearable

computer with a headset and microphone, all of which communicate with the WMS. The

technology can also be used for goods receiving, pallet put-away and stock checking,



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according to the website voicepicking.com. One benefit of voice technology is that

companies no longer have to print and attach labels.

―Voice used to be relegated to places where you couldn‘t use your hands, like a guy picking

ice cream in a freezer, stuff with big mittens and coats,‖ Klappich explained. ―The

technology‘s gotten inexpensive and ubiquitious enough that we‘re seeing people use voice.

Voice is growing, much more than in the past. People are operating their entire pit

processes with voice.‖



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Resources from Apriso

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About Apriso

Apriso is a software company dedicated to transforming global manufacturing operations. It

does so by enabling manufacturers to achieve and sustain manufacturing excellence while

adapting quickly and easily to market changes. Apriso's FlexNet is a BPM platform-based

software solution that helps manufacturers to increase efficiency, agility and quality while

reducing costs and idle inventory. Apriso supports global continuous improvement by

delivering visibility into, control over and synchronization across global manufacturing

operations and the product supply network. Apriso serves 200+ customers in 40+ countries

across the Americas, Europe and Asia. Customers include GM, Volvo CE, Honeywell, L'Oréal,

Trixell, Lockheed Martin, Bombardier, Textron Systems, MBDA, Saint-Gobain and Essilor.

Learn more at: www.apriso.com.

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