The (not-so) Subtle Art of Rebalancing Your Inventory
Now more than ever, manufacturers and distributors are doubting the reliability of their supply chain. Watching lead times lengthen and back orders grow has left many feeling out of control of their business and unfortunately having to pass that uncertainty along to their customers.
With labor shortages, increased customer demand, and many other factors, it’s time for business leaders to rebalance their inventory to compensate for the uncertainties.
These issues don’t stop with manufacturers; wholesalers and customers are also experiencing rising interest rates and longer delivery times. With these issues piling up, how do you plan the right amount of inventory and what signals do you have to forecast your demand? How do you better track and prioritize what is in your pipeline?
Transitioning Away from Just-in-Time (JIT)
To best understand the supply chain's state, we must look at the Just-in-Time (JIT) inventory model.
Created in Japan, JIT was used to create smaller factories that could produce smaller amounts of products and materials faster.
This model is often referred to as the main component of lean manufacturing and was created to get those products out to suppliers and customers quickly while allowing the manufacturers to keep less inventory on hand.
With the supply chain issues, we mentioned earlier, it’s easy to see how the current situation would have a negative impact on JIT.
What used to be shipping and receiving products “just-in-time” has turned into a “whatever I can get” model.
With the increased customer demand, manufacturers have been forced to send out whatever they have, even if it will be late or delivered with downgraded features.
With no end in sight for these supply chain disruptions, what can manufacturers do right now to keep their business stable while meeting customer demands?
Manufacturers need to adapt to the shortages in the supply chain and make plans for their future, including a way to overcome the limitations of JIT.
To achieve this, organizations should consider Industry 4.0 initiatives so that they can:
- Use real-time data to respond to changes in the supply chain faster, with minimal negative impact
- Rely on predictive modeling to forecast future disruptions and issues before they happen. Supply chain modeling is becoming more common, but it requires that your equipment and data be accurate.
A good way to prepare a macro view of your Industry 4.0 readiness is to walk through these 4 steps before you start changing anything:
- Connect - Connect your top floor to your shop floor. Use a checklist like ours to ensure you’ve considered all possible generators of data in your organization.
- Collect - Collecting data from your entire production will provide you with actionable insights into your operations. Review your checklist data points and ask, “If I collect data from this PLC or spreadsheet will it inform decisions?” Try to stick to collecting actionable data.
- Analyze - Having access to your business data gives you the ability to spot trends, anomalies, and patterns in your supply chain, so that you can react accordingly. Having it all in ONE place makes your picture so much more accurate!
- Automate - If there is something you are doing manually and often, then it should be automated. Automation can help streamline time-consuming processes, and free up your manpower to focus on other key areas of production.
These steps will make sure your organization is looking at the right inputs and allow you to prioritize your systems based on impact and margin, as opposed to having to solely focus on preventing bottlenecks.
How ERP Can Make Your Supply Chain Agile
Another way to help rebalance your supply chain is to use your Enterprise Resource Planning (ERP) system fully.
ERP is a software solution that will integrate a company’s departments and functions into a single platform, and many of them have functionality that most manufacturers haven’t used.
When times are good, there’s no need to dive quite so deeply into systems to see where gains can be made. In the current supply chain crisis, it’s a good idea to see what is already available to you.
If you don’t have an ERP or are looking to get a new one, make sure the provider can show you how the system can:
- Optimize processes
- Create a single source of truth
- Improve business agility
- Gain a competitive advantage
- Support your current workforce
Here is a real-life example of an ERP implementation helping a client of ours with their inventory management:
Michigan West Shore Nursery is a wholesale provider of plants and flowers to the garden centers of major retailers like Menards, Lowe’s, and Ace, and inventory management is vital to their business.
With the supply chain crisis leading to limited inventory, they faced a balancing act and a hard decision. With over 300 customers, they couldn’t give their limited inventory to just one client and ignore the others.
Using our approach, we were able to implement an ERP system, InBloom, that works specifically for annual and perennial growers and distributors. This ERP now gives Michigan West Shore Nursery new features that will integrate their sales, inventory, picking, and optimizing shipping loads. In addition to those integrations, they also have their accounting, distribution, and analytics all in one place to give them a full picture of their business performance.
How Business Intelligence (BI) Software Allows You Prioritize your Inventory
The perfect way to get the most out of your ERP, while rebalancing your inventory management is by combining your ERP with a business intelligence tool like Power BI.
Power BI is a data visualization tool that will compile all your company’s raw data, analyze it, and then turn it into charts and graphs giving you a simpler, real-time view of your organization.
Having this data simplified now lets you make educated, more profitable business decisions with real-time data.
If you think of ERP as an engine, BI creates a dashboard with gauges and warning lights that help you share real-time information with everyone in your organization.
So how does this help with the supply chain crisis?
The current state of the supply chain requires manufacturers to be more agile and respond quickly to any changes or disruptions.
The information you gain from BI is real-time data that will help you identify those changes and trends and make the adjustments you need right away.
Overall, having strong BI and ERP implemented into your organization will give you the most visibility, allowing you to make the most profitable decisions.
Inventory Management Trends to Watch
The supply chain crisis and the impact on JIT inventory is a clear trend, but there are other important inventory management trends we’re seeing. The biggest theme of these trends is the clear focus on technology.
ERP platforms and Business Intelligence are technologies helping manufacturers with their supply chain disruptions and overall business management, but these won’t be the only technologies to look out for.
Predictive analytics and business intelligence will play a significant role in forecasting your inventory and delivery times and needs. And we’re not the only ones who think so, in ToolSense’s 14 Inventory trends to watch, they also identified predictive analytics as an upcoming trend.
In their analysis, business intelligence tools can be used to gain insights into their customers, which allows them to view their common behaviors, including products purchased together. This information is used to improve picking rates and faster delivery times, creating a better customer experience.
Another trend you can expect is using automation to reduce labor in your warehouse. This is particularly important as the manufacturing staffing shortages continue to leave them understaffed.
Automating processes that are typically done manually will give you quick and accurate results and give you a more connected shop. This helps to mitigate the labor shortage because now that your processes are automated, the workers you already have are freed up to work on more important tasks that move your business forward.
While there will be many technologies involved as inventory management continues to evolve, there will be one constant goal — creating a more agile supply chain.
The ability to react quickly with the most accurate real-time data has never been more important than it is with the current supply chain crisis and will be necessary for any future supply chain disruptions.
Where Should You Start?
Every adventure starts with taking the first step. And making changes to your approach to inventory is certainly an adventure!
You know you need to speed up your delivery times to meet customer demand, and if you can’t, your competitors will. This shows that adapting to the current supply chain demands is necessary to keep a competitive advantage.
When your supply chain is currently facing disruptions like it is now, it can be even more difficult to make changes that will overhaul your current systems and processes. To start this process, you can always look through resources, like Forbes 2022 Guide, that will have the steps you can follow and tools that can be used to get you started. If you would like help implementing these processes into your business, a partner like Software InsITe which specializes in manufacturing and distribution is here to help.
If you would like to learn more about how we’ve helped manufacturers with supply chain and inventory challenges, reach out to us. We’d love to chat.
ABOUT INSITE BUSINESS SOLUTIONS:
InsITe helps businesses and manufacturing companies get the most out of current and emerging technologies with a customized IT approach to maximize growth, efficiency, insights, and productivity. InsITe is not a typical IT company selling products for short-term, short-sighted fixes. We invest in long-term solutions for a company’s growth by taking the time to learn its products, process, and business goals before bringing tech into the conversation. In this way, we become much like our Clients’ very own internal IT department with familiar faces who understand the business.
If you have any questions about this post please leave a comment. We read and respond to all comments. Or better yet, give us a call and ask to talk directly to our Founder and CEO Mike Schipper 616-383-9000.