tomas wennerstein, syncron presenation at spare parts 2013

Differentiated

Inventory Management Tomas Wennerstein – MD, Syncron Inc.

Stockholm, 8 January, 2013

COPYRIGHT © SYNCRON INTERNATIONAL AB 2013

Main Themes of the Presentation

• A segmented approach is default within price and campaign management etc.,

but why not when it comes to Inventory Management?

• What dimensions are relevant to segment the inventory management approach

on and what are the benefits?

• Repairable parts requires a different inventory management process vs. non-

repairable


Differentiation is Applied in Many Areas

• Everybody understands the value of

Differentiation

• Differentiation is embedded in business practice

when it comes to:

– Marketing

– Pricing

– Sourcing


Different Levels of Inventory Differentiation

• Basic differentiation CostDemand (Sales lines, VAU, Cost)

• Basic Purpose differentiation and Manual overrides.

• Advanced differentiation CostDemand

• Strategy based differentiation

Scope: Inventory Management for After Market parts. Many SKUs in many stocking locations requires dynamic rules that are automatically applied.

DO Quality


Today - What Do Most Companies Do?

• Basic “CostDemand”

differentiation:

– Demand, ABC (VAU),

Picks/Calls/Sales, Cost

A B C $ 0-100 $ 101-1000 $ 1000-

1 Rule X Rule Y Rule Z 1 Rule V Rule W Rule U

2 Rule XX … … OR 2 Rule VV … …

3 … … … 3 … … …

4 or more … … … 4 or more … … …

PICKS

VAU

PICKS

COST


Today - What Do Most Companies Do?

• Basic “CostDemand”

differentiation:

– Demand, ABC (VAU),

Picks/Calls/Sales, Cost

• Basic Purpose differentiation and

Manual overrides

Rule YY

Part A

Non Critical Items Critical Items

A B C A B C

1 Rule X Rule Y Rule Z 1 Rule X Rule Y Rule Z

2 Rule XX … … 2 Rule XX … …

3 … … … 3 … … …

4 or more … … … 4 or more … … …

PICKS

VAU

PICKS

VAU

Non Critical Items Critical Items

A B C A B C

1 Rule X Rule Y Rule Z 1 Rule X Rule Y Rule Z

2 Rule XX … … 2 Rule XX … …

3 … … … 3 … … …

4 or more … … … 4 or more … … …

PICKS

VAU

PICKS

VAU


Advanced CostDemand Differentiation

• Get better at managing the

”CostDemand” differentiation

– What is the cost for

maintaining the same agreed

service level for a part that has

few sales and high VAU

compared to LOW VAU and

high sales?

Inventory cost / Sales order line

A1 A2 B1 B2 C1 C2

1

2

3

4 ?

5-6

7-9

10-19

20 or more ?

PICKS

VAU










high sales?


A1 A2 B1 B2 C1 C2

1

2

3

4 500-5000

5-6

7-9

10-19

20 or more 1

PICKS

VAU










high sales?

• By targeting different Service Level

on a more granular level, you will

be able to maintain a Total Higher

Service Level at a lower cost


A1 A2 B1 B2 C1 C2

1

2

3

4 500-5000

5-6

7-9

10-19

20 or more 1

PICKS

VAU

Target Service per DEMAND/VAU class

A1 A2 B1 B2 C1 C2

1 0% 0% 0% 0% 0% 0%

2 0% 0% 0% 0% 0% 0%

3 0% 0% 0% 0% 0% 0%

4 50%

5-6

7-9

10-19 99.7%

20 or more 99.7% 99.7%

PICKS

VAU



• Challenge the 12 month horizon as a

stocking criteria

– What says that 12 months is optimal?

– In Fast moving Retail no one would

use 12 months

– Aerospace and similar industries

sometimes use 3-4 years



• Challenge the 12 month horizon as a

stocking criteria

– What says that 12 months is optimal?

– In Fast moving Retail no one would

use 12 months

– Aerospace and similar industries

sometimes use 3-4 years

Successful results from going from 12 months to 12 and/or 18 months


A1 A2 B1 B2 C1 C2

1 0% 0% 0% 0% 0% 0%

2 0% 0% 0% 0% 0% 0%

3 0% 0% 0% 0% 0% 0%

4

5-6

7-9

10-19 99.7%

20 or more 99.7% 99.7%

PICKS VAU


A1 A2 B1 B2 C1 C2

1 0% 0% 0% 0% 0% 0%

2 0% 0% 0% 0% 0% 0%

3 0% 0% 0% 0% 0% 0%

4

5-6

7-9

10-19 99.7%

20 or more 99.7% 99.7%

PICKS VAU


A1 A2 B1 B2 C1 C2

1 0% 0% 0% 0% 0% 0%

2 0% 0% 0% 0% 0% 0%

3 0% 0% 0% 0% 0% 0%

4

5-6

7-9

10-19 99.7%

20 or more 99.7% 99.7%

PICKS VAU


Strategic Differentiation

• Understand the ROI on different parts as they are stocked in Inventory and

adjust your inventory strategy and consequently your Inventory Parameters

• Example of groups that could be valid when segmenting you inventory

management techniques

– Criticality

– Captive vs Commercial

– Margin contribution

– Weather and Climate related

– Part Life cycle phase

– Unreliable suppliers

– Machine Life cycle phase

– Machine belonging

– Non historical demand driven

items vs. demand driven

– Planned vs. unplanned

– Rotables vs. normal

– Short vs. long lead-time


Strategic Differentiation

• Dimensions to consider for the different

strategies

– Stocked or not stocked

– Criteria for stocked or non stocked

– Target Service Level

– Alert level for manual review

– How much should historical demand

influence the inventory management

(new parts)

– New methods

http://www.google.se/url?sa=i&source=images&cd=&cad=rja&docid=QBPo0OmwbgcudM&tbnid=nwQHFB-H43Fl5M:&ved=0CAgQjRwwAA&url=http://phillips.blogs.com/goc/2008/04/dimensions.html&ei=J3MPUbbHKIrItQaA1YGgAQ&psig=AFQjCNEcOM01AHxMJXrbb-DdgqK3ErZEow&ust=1360053415692739


Common Questions Related to Inventory Differentiation

• Is there a business case for me?

• What differentiation is applicable?

• What is the effort?


Business Case and Relevant Differentiation

• Smarter basic differentiation normally yield 10-25% inventory savings at a

maintained overall service level.

• Adding other values such as differentiated service and techniques for different

segments will add value as well as facilitate less administration.

• A more exact value can only be found by:

– Analyzing the data, you will be able to draw relevant conclusion as long as

the business has not changed substantially.

– Understanding the value contribution of Inventory Management and discuss

with Sales and Marketing as well as Product Development.


What is the Effort to Become Better at Differentiating?

Two aspects to consider are:

• Finding the relevant segments for the operation

– Understand the value that availability adds for customers and profit for the

different segments

– Understand the data and how you can make your segments

• Incorporate the differentiation in daily inventory management

– System support

– Skills and “know how”


Questions

How many would say that they that are doing differentiation to

its full potential? 1


Questions

What segments do you differentiate on today and what has

prompted that? 2


Questions

Where do you see the biggest challenge in incorporating more

Differentiation in your inventory management? 3

tomas wennerstein, syncron presenation at spare parts 2013

Business

high sales

high vau

different service level

costdemand differentiationwhat

inventory management

agreed service level

inventory strategy

low vau