GRA’s strategic and holistic approach to inventory management optimises the complex relationships between costs, capacities, constraints, target service levels, variability and risk (such as forecast error and supplier delivery performance) for each item at each location across the supply chain network to increase service levels, improve cash flow, reduce operating costs, and improve the management of working capital.
Despite being classified as an asset, investments in inventory often do not undergo the same rigor and analysis as investments in other types of assets, particularly plant and equipment.
In addition, the optimisation of inventory is not an isolated or static activity. It requires an approach that is closely integrated with other supply chain activities and has the capability to respond to factors such as changing demand patterns. However, the relationship between these factors can be complex and difficult to interpret and manage.
As a result, poorly managed and misbalanced inventory may result. Symptoms and consequences of this include:
For capital intensive businesses, Inventory Optimisation represents a unique opportunity to create competitive advantage and generate substantial return on investment through better management of working capital, improved customer service levels, greater return on assets, and by reducing supply chain operating costs as a percentage of sales, increased profits.
By dynamically optimising inventory parameters, this process also enhances the ability of organisations to respond to external factors, buffer volatility and realise the cost & service benefits of process improvements.
GRA’s approach to inventory optimisation involves two key steps. Firstly, we take a strategic view of inventory, which focuses on the network structures, inventory segmentation and appropriate stocking policies to best fit an organisation's strategy. Using our analysis tools and techniques, GRA can run simulations and model different scenarios to show the impacts of different service levels and locations on inventory investment.
Secondly, there is the operationalising of these policies. This involves calculating the optimal inventory parameters, including safety stocks and order quantities, for the purposes of planning and replenishment. In a best-in-class scenario these inventory parameters should be regularly recalculated in order to keep inventories optimally balanced as key factors and drivers change.
This approach considers all key drivers of inventory, including:
This dynamic approach means inventory parameters always reflect the most recent changes in these inputs. As such, GRA also works with clients to improve these inputs – including forecast accuracy and manufacturing variability – to drive lower overall inventory levels that deliver the same, or better, service level results.
GRA also utilises the following capabilities and techniques as appropriate when optimising inventory:
Inventory optimisation effectively allows organisations to “achieve more with less”. The following questions are answered by this approach:
Benefits resulting from the effective application of this approach to Inventory Optimisation include:
We invited GRA to run a workshop to educate the broader business on S&OP, help us design a next level S&OP process and map out the requirements and next steps to implementation. We have made significant progress with S&OP since the workshop, the key aspect is that it has been accepted at all levels and there is commitment to the process which was the big hurdle.
– Lee Rawstron, Head of Operations ANZ, Sinochem Australia