Recently GAINS Co-Founder Bill Benton and GAINS VP of Solution Strategy Jeff Metersky sat down with the Founder of Supply Chain Insights, Lora Cecere, to examine strategies for tackling today’s tough inventory challenges. Some of the topics discussed focused on common pitfalls that supply chain professionals face when trying to improve supply chain operations in their organizations. Below we discuss one of the chief issues many organizations face that was discussed in detail during the webinar.
Set it and forget it
Some businesses commonly use the “set it and forget it” principle. You’ve bought an advanced planning tool with all these wonderful capabilities; however, if you aren’t monitoring the data going into it and the overall environment around it, you aren’t likely to get the results you want. It’s like investing in a new furnace in January, setting the thermostat, walking away and not touching it for a year, and wondering why it was so hot in your house in August.
According to Lora Cecere, demand and supply volatility are at unprecedented levels, causing supply chain pros and their executive team to pay closer attention to their systems and results. “If you look at the Global Supply Chain Pressure Index, it’s about three times what we saw at the end of the great recession in 2009. People have often implemented advanced planning systems, and they’ve set it and forgotten it. Not examining how I adjust for changes in lead time, in planning master data, or how do I ensure that my optimization engines are coping with the heightened variability?”
“In the early stages of the pandemic, I did some qualitative interviews and found that, of those I spoke to, 94% of companies had moved to managing their operations in Microsoft Excel because they found history was not a good predictor of demand.” Lora went on to say, “Historically, our practices for demand planning have always assumed the prior years’ order and shipment patterns would serve as a good proxy metric to enter into optimization engines to deliver results. But during the pandemic, when demand changed, and people shifted from buying services to buying products, our industry was caught on its back foot because those traditional demand planning solutions and approaches were insufficient. As a result, many companies lost faith in their advanced planning systems and moved toward the more manual labor-intensive process of using spreadsheets. But with Excel, it’s impossible to perform the necessary demand and supply modeling that needs to happen in such a volatile and complex environment.”
Lora continued, “We need to rethink our processes. Order history is not a good proxy for demand in an environment of high variability. You need to use your channel data and test your optimizers continually to ensure you are getting accurate results. We wouldn’t run our car years without taking it to the shop, yet people don’t sit down, backcast, and test the optimizer to be sure they’re getting a good answer. I encourage people to look at their processes, question their actions, and test their tools using forecast values to see if they see the improvements they expect.”
Jeff Metersky stated that while he agrees that demand forecasting is essential to maintain inventory health, it’s also critical to look beyond. Not only examining the current and future state of demand, but supply chain professionals should also examine the supply side.
He shared, “Supply chain professionals don’t do enough scenario planning. I don’t think we fully understand the possibilities of what can happen to us. An important key to supply chain success is getting ahead of issues before they arise. It’s not enough to be reactive, which the use of spreadsheets limits you to. Solutions like GAINS do a good job of understanding all types of variability in supply and demand. A lot of what’s driving well-balanced inventory environments at the moment is having a better understanding and a level of predictability when it comes to lead times—getting ahead of lead times and not waiting till they change to update your strategy. These insights are part of our current capabilities; we’re doing this with some of our customers. We can predict that lead times will change significantly enough, so businesses need to alter their plans to ensure that inventory and service levels don’t take a hit. As a GAINS user, I’d know I need to change my inventory policies because of transit times, vendor compliance, adherence to schedule, etc. We’re seeing great early results and early wins from some of our customers using GAINS to make a significant difference in helping them right-size their inventory.”
Lora added that as part of her research, she found that only a third of companies use what-if analyses. Of that one-third, 85% only look at demand variability, not supply variability. “Often it’s the case that organizations have set up their supply chain planning systems with a lead time, and often it’s the lead time that was in place when they set up the system; they don’t adjust it much or look at the probability or the range of what’s happening with their lead times. Right now, lead time analysis is so important, with 20 to 30% of the containers being shipped going to be pushed because the ocean carriers are currently working on trying to fill up their ships in the face of lower demand.”
Bill provided insights from his extensive experience with GAINS customers. “I’ve been working on supply chain planning and optimization, having worked with over 500 companies ranging from small to Fortune 100. One thing I’ve seen that’s been effective is starting something now, then iterating. Supply chain professionals shouldn’t let having to solve policy for every product prevent them from starting for any product. One of our customers has 20% of their SKUs, accounting for 85% of their sales, but only 30% of their inventory. Rather than wrangling with sales teams over how to fine-tune that 30% of the stock that comprises most of their sales goals, focus on how you can optimize those long tail items that comprise most of the inventory and a small portion of sales.”
“Optimizing inventory is important, but it may seem overwhelming. However, you don’t have to do it alone and can do this in phases. One of the things GAINS does best helps businesses accelerate at least phase one, maybe its phase forever, by providing optimization-as-a-service. I encourage supply chain professionals to be creative. Think about what you can do internally with your existing tools, and ask what new tools you need. And perhaps bridging the gaps by using outside expertise as well.”
Inventory Webinar Insights:
- 94% of companies have moved to manage their inventory operations in Microsoft Excel since 2020.
- Order history is not a good proxy for demand in an environment of high variability.
- An advanced optimization solution like GAINS can lead to a better understanding of supply and demand forecasting.
- Supply chain volatility is expected to continue due to delays in ocean shipping and other factors.
- Continual Improvement in your systems requires regular updates using the latest data.
To discover more strategies to optimize your inventory for 2023 and maintain service levels in an ever-turbulent supply chain environment. You can watch the entire discussion with the Founder of Supply Chain Insights, Lora Cecere, GAINS Co-Founder, Bill Benton, and GAINS VP of Solution Strategy, Jeff Metersky, and learn more about their proven strategies for facing today’s inventory challenges by watching the exclusive free webinar here.