These are strange and challenging time for supply chain management generally and the procurement function specifically, with many supply items difficult to acquire in a timely manner if at all, most notably but hardly only with semiconductors.
Supply Chain Digest Says...
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| These are obviously a very basic set of tactics of recommendations, and more geared to smaller companies, but a few may trigger some ideas in any company’s operations. |
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What are supply and inventory managers to do in such times? Writing last week on the UK’s SupplyManagement.com web site, Peter Drakeley, head of customer success at EazyStock, a software firm, offers 10 practical tips for maximizing results in such conditions.
We summarize the 10 tips below:
1. Be extra nice to suppliers: With many companies often competing for the same supply, Drakeley says it’s more important than ever to build and nurture strong relationships with your suppliers.
Start by creating and sharing a monthly order schedule. Armed with this information, it’s then the responsibility of both parties to agree whether these expectations can be met, and, if not, what can be achieved.
2. Track risk of run-out KPIs: When a company has supply problems, it needs to know what stock items are most at risk of running out, when are they likely to run out, and by how what amount you are likely to be short.
“If you have this critical information you can put a plan in place to help procure the shortfall and intelligently allocate remaining stock,” Drakely says.
3. Up your forecasting game: The number one way to help improve stock availability is to understand what stock is needed in the first place, says Drakeley.
Forecasting tips from Drakeley includes being sure to identify SKUs trending significantly up or down, or that have strong seasonality. Also, recognize qualitative demand data is very important when markets are changing at a dramatic pace, so seek information from the sales team, customers and industry trade bodies.
4. Remove periods of stockouts from forecasts: If periods of no demand due to lack of supply are not addressed, they will incorrectly bring down overall. Drakeley says it can be good to make an assumption about the lost volume due to stockouts and add this into the forecast.
5. Prioritize the right stock: Companies must do analysis to identify stock items that are business-critical and prioritize their management, such as checking forecasts, stock levels and lead times more frequently, Drakely says. There are several ways to conduct such analysis, such as based on annual sales or procurement volumes. Other ways to do the analysis include classifying SKUs based on other business critical criteria, including 'risk of run-out', 'uncertainty of supply', or 'importance to production', Drakeley notes.
6. Allocate stock intelligently: In these times, companies must make optimum use of all inventory in the supply chain. Inventory balancing and transfers from sites with high inventories to those with low levels is one obvious tactic. Drakeley also recommends being strict when allocating stock to regional sites, as managers often ask for more stock than their forecast states, so they’ve got extra coverage.
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 He also recommends centralizing ordering and inventory decisions. If this isn’t possible, companies should ensure everyone is following the same replenishment rules and feeding information back to a central database.
7. Adjust reordering calculations for variable lead times: Actual lead times should be tracked and action taken when they begin to deviate from expectations, Drakeley says. Those actions include increasing safety stock levels, shortening order cycles to reduce the risks associated with a delayed big order, and switching suppliers.
Some inventory and/procurement software of course can factor in lead times when recommending ordering trigger points; if not, tracking will require a more manual effort. The question is whether historical or even recent lead time calculations are accurate in the challenged supply world.
8. Diversify your supplier network: Single sourcing can be especially risky in this kind of environment – however there is also likely a cost implication if single source volumes are split among suppliers.
9. Optimize shipping: With sky high ocean shipping costs, Drakeley says to not let suppliers ship half full containers, or fill them up with items that are not business critical.
10. Let computers do the computing: Software can help in many areas, not surprisingly says Drakeley, who works for an inventory software firm. In addition to automating many manual tasks, procurement and inventory software can better manage the many moving parts in a supply chain and enable companies to act quickly and decisively.
SCDigest’s Take: These are obviously a very basic set of tactics of recommendations, and more geared to smaller companies, but a few may trigger some ideas in any company’s operations.
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