Final Thoughts: The Value of Being Out-of-stock (Almost) Everywhere

Applying "lean" principles to the supply and demand chain

One primary goal of many supply chain improvement initiatives is to allow companies to trade information for inventory. The theory goes that, if an enterprise can gain greater visibility into where goods are at any particular moment in its supply chain, the company can reduce inventory because it will have the confidence that the goods will show up at the right place at the right time. How "lean" should a supply chain be? Very lean indeed, according to Jeffrey Miller. "Our goal is to build sourcing, manufacturing and fulfillment systems that strive to be essentially 'out-of-stock' everywhere but at the point of sale or consumption," says Miller, who is practice director for supply chain management at Unisys Corp., an information technology services and solutions company.

Miller managed manufacturing and materials operations within Westinghouse before joining consulting firms KPMG, Accenture and now Unisys. In his days in manufacturing operations, Miller says that he and his colleagues applied lean principles to the supply chain, but had to contend with the low level of supply chain visibility afforded by the IT systems of the time. "We struggled because the supply chain visibility, analysis and decision tools just weren't there 10 years ago," he says.

Now, however, Miller says that supply chain technologies have advanced to the point that companies realistically can move toward an "out-of-stock-everywhere" supply chain, with demand and supply signals and material statuses moving swiftly between supply chain partners, supporting informed, timely decisions about how best to meet demand. "We seek to remove information latency in supply chain systems," says Miller. "We want status, condition and exception signals to move quickly through the infrastructure, including between the decision nodes, so that the need for compensating inventory in the supply, manufacturer, distribution and fulfillment systems is minimized. That's how to be 'out of stock everywhere' but at the point of consumption."

Miller, who currently is applying these lean concepts to the supply chain through Unisys' Demand-driven Manufacturing Initiative, sees two barriers to achieving "out of stock everywhere." First, before companies invest in the new supply chain tools and capabilities to provide visibility, they must be prepared to make pricey, yet necessary, investments in their back-office technology infrastructure to support those solutions, and they must put in place new processes to support the higher level of visibility. Miller says that if companies took a longer-term view in the preparation of their capital investment cases, and were willing to change basic businesses processes, they could achieve step change improvements in their cost-value curves and achieve impressive ROIs with all supply chain participants, simply through reducing excessive visibility-based channel materials.

Second, perhaps the biggest roadblock to achieving "out-of-stock-everywhere" could be cultural. "The performance scorecards for many products companies are entrenched in perfect order fulfillment without the counter-balance of requirements for pipeline inventory visibility and accuracy targets," comments Miller. "Too often, companies will over-correct this problem by arbitrarily 'leaning' their supply chains at the expense of fulfillment performance. Companies must strike a new balance between lean concepts and precision fulfillment."

Ultimately, companies will be forced to make the necessary investments and change their mindsets, Miller feels, because supply chain performance — increasingly translated into efficient fulfillment with minimized pipeline material investment — is becoming the single most important differentiator for product companies competing in saturated markets. "Finding the value of visibility and aligning the organization to realize the benefit of it is where the challenges lie," Miller concludes.