Balancing Cost and Service

Lessons learned from successful supply chain executives


The supply chain team identified one of the key areas to reduce costs and improve service was in how the company managed its inventory across its several tiers of production and customization. For example, a single tool can have multiple retail customers each with slightly modified capabilities, design and packaging. Manufacturing the incorrect amount, high or low, can have a dramatic impact on your relationship with that retailer, not to mention the bottom line. The challenge is to identify where inventory should be located to ensure maximum flexibility, minimal expense and great service throughout the supply chain.

Logility Voyager Inventory Optimization was selected to help set inventory targets across Black & Decker’s multiple stages. Each customization, such as changing color or adding a feature specific to a retailer, occurs at different stages and adds cost. Once modified, a product must be used at a single retailer or risk being discounted or becoming obsolete.

Starting with a single-stage pilot program and then expanding across multiple stages, Black & Decker identified a 25 percent difference in inventory requirements. The pilot program also taught the team that when optimizing a multi-echelon supply chain it is common for some inventory levels to increase (usually work-in-process stages) while others (often finished goods) decrease. Setting targets according to the MEIO recommendations creates an overall significant inventory decrease and cost savings.

The data gained from the pilot program was used to prove the concept and gain the go-ahead to deploy the Logility Voyager Inventory Optimization. In full deployment, one of its largest manufacturing plants saw a 25 percent reduction in finished goods days of stock. The plant also reduced the amount of raw materials and components by 17 percent. This was accomplished without a penalty to service levels.

Don’t slash, optimize!

As these examples show, today it’s less about brute-force inventory reductions and more about intelligently managing the locations and quantity of inventory to optimize the trade-off between cost and service level. During the current financial downturn it has been quite common for companies to simply slash inventory. Well, as the recovery continues to unfold, and companies who have implemented enlightened best practices such as MEIO will not only have weathered the storm, but will be positioned to grow more flexibly and cost-effectively. That’s when a good balancing act becomes a significant competitive advantage.

About the Author: Karin L. Bursa is vice president of marketing at Logility, a provider of collaborative supply chain management solutions. Ms. Bursa has 25 years of experience in the development, support and marketing of software solutions to improve and automate enterprise-wide operations. For more information, please visit www.logility.com.

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