Inventory Management Solution

Archive for tag ‘Robert Lamarre’

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Who’s pulling the weight

Monday 2 August 2010

In more than 80% of organizations, management of min-max is left in the hands of managers who are often caught between a rock and a hard place. On the one hand the sales people operations and maintenance all strive to ensure they do not encounter any shortages. On the other hand, the finance people, bankers and shareholders are all concerned about the money tied up in inventory.
Inventories are manually adjusted in response to the company’s crises. If a major customer encountered a stock shortage, the min-max are increased. At quarter end finance people want the inventory as low as possible. Procurement is stopped and the min-max are reduced.

The “Miracle Department” reacts again and corrects the situation. The expectations of the organization are extremely high towards the inventory management department. It is expected that these individuals manually adjust min-max for 15,000 to 35,000 items without making any mistakes. They must consider seasonality as well as upward or downward demand trends. They know when an item, used twice a year, will be requested next.

A recipient of a master’s degree in Operations Research, I have over 30 years of experience and am recognized as a leader in Quebec in Inventory Management. However, even with my experience, I do not have the capability to manage 35,000 items and to manually determine the optimal min-max.

The good news is that inventory management is now a science. There are formulas and calculations which allow optimizing inventory management and automatically and dynamically setting (with automatic and computerized revisions at month-end) the min-max in order to achieve the organizational objectives of service while minimizing inventories. Min-max that are managed using this approach usually increase the overall rate of availability of parts or items with 25% to 50% less inventory.

Another positive point is that inventory management is also an art. The machine does not know everything. A good inventory management system will notify managers it is time to adjust a min-max when:
- there are sudden changes in the pattern of consumption;
- a new item has now enough history to use the automatic mode;
- the system has difficulty in establishing reliable consumption forecasts for a given item;
- there is an open order to the supplier for an item in surplus (a customer order might have been canceled, stock might have been returned from another customer or for any other valid reason);
- an item has not been consumed for six months;
- the calculated min-max for the coming month is quite different from the previous min-max;
- or for any other defined signal.

Put a talented and artistic inventory manager in command of a good scientific system and you will obtain the perfect balance for managing inventory. It’s a thousand times more effective!

Robert Lamarre

Inventory management and health

Tuesday 29 June 2010

The AQLASS conference held last week brought together Supply Chain professionals from Quebec’s health care sector. The challenges of inventory management are important. Most managers have few tools to manage the services offered to the users based on the availability of their inventory. Supply chain leaders must manually review the Min and Max for thousands of items to prevent shortages and provide excellent service. Obviously, this is accomplished with much higher inventory levels than necessary. Nevertheless, they still face shortages.

The ABC classification of their items is not frequently used.  Few tools are used to manage the delivery lead time.

There is no forecasting tool to predict future needs.

Communication with health-care units to determine what should be kept in inventory is still the only form of forecasting. However, there are ways to automating and optimizing the inventory management. Health care institutions in the United States have an edge over in this field.

It was significant to see more than 300 Supply Chain professionals of the health care sector meet and, among other things, discuss how they could improve inventory management in our institutions. There is money to save, but more importantly, the institutions are seeking greater control of their service levels and on the availability of the medical supplies.

We were proud to be invited and participate at this major event and which will undoubtedly have positive repercussions for the Quebec’s health institutions.

Robert Lamarre

Key Performance Indicators (KPI): Discover the truth about your management supply chain and how to transform it

Monday 7 June 2010

Key Performance Indicators (KPI): Discover the truth about your management supply chain and how to transform it

In order to break into today’s global markets and to challenge an ever-increasing competition, supply chain managements must explore all opportunities available to them for self-improvement.  If you want to succeed in a highly-competitive environment such as ours, you must continuously upgrade yourself.  To gain ground, you must first assess the current situation of your organisation by implementing the best measurement tools available.

The role of a Key Performance Indicators

Key Performance Indicators are specific tools that provide the necessary information for benchmarking purposes.  They will appraise the current situation of your stocking department by identifying the strengths and weaknesses of your organization and will signal the strategic areas that require intervention to make your business more competitive.   These tools will serve as a starting point to evaluate the progress accomplished in your supply chain.

Key Performance Indicators will be your follow-up tools to establish realistic objectives for your business and will monitor your progress towards your company’s goals.  The efficiency of all your departments can benefit from these measurement tools by assisting them in their self-evaluation, providing motivational impetus and by assessing progress made.  Good performance indicators can also identify early on any operational problems.

The development of Key Performance Indicators

Based on the strategic planning and the objectives of a business, key performance indicators function according to the unique characteristics inherent to each company.  All key performance indicators must:

Coincide with the strategy and objectives of the company

Represent market trends and progress achieved by the company

Agree with the other departments

Include financial and non-finance related information

Determine what is important for the client

In order to develop good key performance indicators, a data base must first be set up to establish various measurements.  The necessary information to this effect should be found in your management systems.  Prior to implementing the data base, it is essential to perform a thorough review of your supplies, finance, sales and operations’ departments.  All information gathered must be exact.  The integrity of the resulting data will be decisive in ensuring the optimal performance indicators for your business.  Since the setup of the performance indicators is based on the accuracy of this information, an analysis of the data results will be a definite prerequisite.

When evaluating a supplies department, it is imperative to take into account the level of your customer service.  The supplies department functions as a support for your sales, production and maintenance capabilities.  Thus, the evaluation of this service must take into account its capacity to meet its fill-rate needs by assessing the supplies department’s response time to purchasing requisitions or by evaluating the ratio of purchasing requisitions necessary to render a product or service available within the required delays.

Additional indicators should also be established to determine the level of supplies required to manage supplier accounts as well as their numbers.  The type of agreement, product availability and level of cooperation are also elements that should be taken into account as part of these tools.

Furthermore, the organization should also put in place a series of performance indicators that are cost-related.  Among these added indicators, are to be included the costs of maintaining stock and order placements as well as determining a ratio on acquisition costs and savings realized during the course of negotiations.

Performance indicators should also be set up for lead times, of which consideration should be given to timely as well as late and premature deliveries as well as product surplus deliveries.

Finally, the work accomplished by the personnel of the supplies department should also be accounted for when implementing performance indicators.  Measurements such as the service level per customer and the number of transactions as well as purchases per customer must also be included.

In conclusion, it must be noted that the implementation alone of these measurement instruments know as KPI will not affect the performance of your supply chain.  However, the combination of good performance indicators coupled with an effective action plan and an employee-motivated environment will certainly improve your supply chain and ensure that your business will remain competitive.

Benoit Ouellette

Why give priority to inventory management?

Monday 3 May 2010

Discipline must be an essential component of our daily lives if we are to succeed professionnally and attain our goals.  This rule also applies to inventory management.

Concepts such as classification of parts, grouping of parts and the criticality of every part must be implemented in every company.  Unfortunately, these notions of inventory management are not yet installed in our management practices.

However, is Customer Service part of your priorities?

Is business productivity part of your management practices?

Do you buy and sell only when the cost price is at its lowest?

Do you want to increase your profits?

You wonder what these objectives might have in common with your priorities?

Let me share with you the experience of a production company that suffered from constant delays and bad service at the beginning of every fall session.  The staff could no longer suffice  due to the increased demand at this particular time of the year.  Their rolling stock was garage-bound because of broken parts.

It is normal for equipment to be in repair.  For it to remain there, no.  After taking note of the problem, the administration asked itself why there was always a shortage of parts in the repair shop. As a solution, they decided to increase their inventory to eliminate stock disruptions.  Although their stock levels gradually built up, the situation did not improve.  Worse, they had an accumulation of inventory surplus notwithstanding parts that had become obsolete. After various observations and analyses of their inventory, it was decided to proceed otherwise by classifying their parts into specific groupings.

We must all have a surplus of critical parts in inventory that are available at all times to ensure an adequate customer service.  This is the direction the company took.  Each part is now sorted into a   category that belongs to a specific group along with its level of criticality. Thus, the problem was resolved and all their rolling stock was on the road when required.  As a result, their level of service increased by more than 10%, complaints were significantly reduced and their customer service was built up.  Therefore, are you disciplined?

Expenditures and logistics

Monday 3 May 2010

Did you know that, for the first time since year 2000, expenditures linked to logistics surpassed by 10% the GDP of the U.S. in 2008?  This data is provided by the ‘State of Logistics Report’ published by the ‘Council of Supply Chain Management Professionals’ at “ http://cscmp.org.  An average of 60% of these expenses is borne by the transportation industry.  The hike in fuel prices has had a strong impact on consumer goods thus generating an increase in costs.  Our grocery basket does cost us more!  We also learn through the media that since the end of 2008, government service charges have increased and the number of people having problems with balancing their budgets will be even more at risk.

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