I am often asked how we chose the images featured in our software. To me these are icons of a very modern story.
This picture speaks to me about the careful but quick work required to produce a quality product at a competitive price. That tireless effort and all the natural resources of material and energy that go into a product should never be wasted.
In the context of inventory we should carefully avoid excess stock because of the waste involved; as planners this means making sure that our demand plan is realistic. Overly optimistic demand causes problems with our safety buffer and increases the risk of excess (as well as exacerbating the risk of higher costs due to peak demand it places on our production process).
- Safety time buffers leading to early delivery together with long lead time can quickly lead to product being ordered that is not eventually needed because we are locked into orders before we know whether sales will match forecast.
- Safety stocks defined by Days Cover multiply the demand so where forecasts are unrealistically high they will be multiplied up giving unnecessary safety stock.
A few years ago I asked the Marketing representative on a new product team why their forecast was consistently four times higher than our customers ended up buying to be told “If I don’t forecast that high my project will be stopped”. As Supply Chain professionals we can use the demand waterfall to show how forecasts evolve and stimulate a discussion on honest decision making that avoids waste. A demand waterfall report will be included in the next release of our SafetyStock ProfeSSional app at the end of Q2 2022.
To reduce wasted production quality checks (with higher sample for new products) should be used to trigger immediate problem solving. We never recommend putting any buffer for poor quality into the safety stock as this just increases the quantity of product with a quality problem!
A container ship leaving Hong Kong harbour shouts about the redistribution of manufacturing around the globe that has happened during my working life.
In Western economies we have all benefitted from lower priced goods from other regions that have seen a massive improvement in their living standards as a result. The BBC article “How the West invited China to eat its lunch” was spot on in describing how much of our production has migrated to China. I expect we will continue to see manufacturing expand in developing countries raising their living standards and resulting in a better sharing of global wealth at a time when we cannot continue consuming the planets resources at ever increasing rates.
However for me this picture speaks of increased lead times – lead time is the principal enemy of supply chain professionals but one that we will have to live with in the long term. Longer lead times require increased safety stocks. The graph below taken from our SafetyStock ExpreSS app shows how safety stock needs to increase by nearly 50% higher as lead time increases from 3 to 13 weeks:
Green bars below show safety days cover for 98% service level versus lead time in weeks for a typical case (Demand CoV = 0.7 / Standard deviation of actual lead time = 1.0 weeks / Order cover period = 1 week / Replenishment possible every week)
Finally this one reflects the mountains of stock held with the intention to give good customer service. Safety stock often needs to be between 50 -80% of the stock we plan to hold. We can have a big impact on focussing investment on the right stocks (and reducing the risk of excess stock) by setting the right safety levels - our passion for supporting the right balance between service and inventory is built into our SafetyStock ExpreSS and SafetyStock ProfeSSional apps.