In a recent project with one of the world’s largest and most critical healthcare providers I was stunned to learn that they did not even measure inventory accuracy, let alone know what it was or have on-going efforts to improve it. On a project with a prestigious industrial conglomerate I helped them uncover the fact that over 50% of their MRP and BOM data was just plain wrong. In a project with a global aerospace company we discovered that over 500 people, some with minimal credential requirements could make multi-million dollar changes to high level production schedules with little to no oversight. In a project with a major high tech equipment company we found that unqualified inventory “analysts” were “tweaking” major inventory set points and true demand in their service parts inventory system. The pre-meditated tweaks were un-vetted, un-supervised and made to guarantee that reported turns coincided with their personal turn targets. In a recent project with one of the world’s largest commodities companies the company balked at my suggestion that they even consider using the word “integrity” in reference to inventory because “integrity” sounded moral. In each case, the companies yearned for and nearly demanded the most sophisticated practices in inventory management, while struggling with, ignoring, flying in the face of, and/or naively overlooking the basis for all inventory improvements – integrity.
Integrity is the foundation for everything related to trust. Trust is the fertile cultural and technical soil required for true inventory optimization. Without it, each element of the supply chain hunkers down into their own inventory protection mode, commonly known as hoarding.
High levels of inventory integrity develop from high levels of inventory accuracy; reliable base data including leadtimes, MRP records and BOM records; measured and persistently improved forecast accuracy; and consistent, disciplined participation, follow-through, and accountability by key players in inventory decision making meetings and processes.
Once a high level of inventory integrity is established, the next phases of inventory management maturity are attainable. Level 2 is inventory stability, where predictable cause and effect outcomes are the rule as opposed to the exception in inventory behavior. Level 3 is inventory optimization, where the SKU portfolio, forecast, leadtimes, lot sizes, deployment, visibility, inventory carrying rate, inventory turn rate, and fill rate that meet required service levels and maximize financial performance are determined and implemented. Level 4 is inventory integration, where inventory optimization incorporates cross-functional participation in and accountability for inventory decision making. Level 5 is inventory collaboration, where sharing inventory levels, forecasts, and planning with key suppliers and customers is commonplace.
Inventory Management Maturity Phases
Inventory integrity and its elements including inventory accuracy, SKU record accuracy, putaway accuracy, forecast accuracy, and lead time accuracy are all measured, monitored, included in personnel incentive plans, and relentless improved via root cause analysis and corrective action.