17 May 3 Ways to Release Your Cash with IBP Inventory Optimization
(By Mike Raftery)
Stacks and stacks of dollar bills. Some on pallets, some on fork trucks, some on the road. That is what you should see when you walk into a warehouse: stacks and stacks of money. And like a wise man once said, “mo’ money, mo’ problems.”
That money is just sitting there, collecting dust, not being used to fund projects, new resources, new IT tools (Integrated Business Planning anyone?) So how do you free up those dollar bills from their confinement? And how do you make sure you don’t tank the company at the same time? Careful, careful planning. The IBP inventory optimization tool provides a new level of simulation and functionality never before available with an SAP suite of tools, and in this author’s humble opinion, it has the potential to unlock those dollars faster than any other investment you can make.
- Variability is the Enemy
Why do you even have this inventory to begin with? Answer: to protect against variability. It is the enemy of a well-run supply chain, and while you can’t eliminate all variability, you can protect yourself against the uncertainty it brings. This protection comes at a cost, hence the pallets of money sitting in those warehouses. Identifying the specific places and products to store inventory to protect against the variability is the trick, and that is what inventory optimization delivers.
IBP for inventory gives you a playground to identify, model and test different variabilities. This makes for tactical strikes at supply chain efficiency rather than a shot gun approach for improvements. If you know exactly which issues (variabilities) move the needle on inventory, you can go after those pain points and focus resources where it makes the most sense
- Crawl, Crawl, Crawl, Walk, Run
Blindly trusting the first results from an inventory optimizer is a good way to get yourself fired. No matter what you do, it will be an adjustment to the current inventory plan. The key is to move slowly. Take steps to understand the inputs, find what drives the differences, set guardrails and proceed accordingly. We at SCMC know that change and trust are built slowly, especially when you’re playing with levers that deal with customer service. So trust but verify, grow into the savings and develop a plan that does not shift the ground you’re standing on when go live occurs.
- Learn to Speak in $
Inventory is nice, but cash gets people’s attention. Inventory means dollars that can’t be used for useful things, like investments, bonuses, salaries, etc. Every dollar kept in inventory is a tradeoff for dollars that can not be used for anything else. So it’s critical to keep that investment at a bare minimum.
When identifying opportunities, it is KEY to identify those savings, not in “days on hand,” not in “cases” but “$”. Money talks, and people listen. So remember to ensure the value is communicated effectively speak in $’s.
This also allows for the identification of opportunities that might not be obvious at first. Speaking in terms of “days on hand” focuses attention on the finished goods. But perhaps the real opportunity is in raw materials or WIP. Speaking in dollars easily quantifies these opportunities in a common language that days on hand may not.
IBP’s native ability to be bi-lingual in supply chain and finance means those discussions in dollars are as easy as a click. Do your analysis in cases, share in dollars. That’s the business advantage of IBP.
Inventory is money, and as a result, it is the business case of IBP. However, it’s important not to overpromise. This is a complicated dance, and you need to be able to build upon confidence in the systems before jumping in with both feet. Do it right and free money will be at your fingertips. That is the power of inventory optimization done right.
Ready to see how this plays out? Get in touch with us. We’d love to chat. Or check out the other blogs in this series.