Rubenstein Justman Management Consultants

Inventory Management – Own and Postpone

The two mantras of inventory are ‘less is better’ and ‘quicker out the door’.

This post explores two areas of inventory management that have been attracting renewed attention due to the availability of more sophisticated software to implement them.

Ownership Strategy

We all know that most of the goods we consume are manufactured in another country. Although production lines are churning out product, the time that goods remain in transit only adds to the final cost. For this reason many companies are beginning to pay more attention to the costs incurred while product is docked, in transit, or waiting for bureaucracy to act. It is entirely possible that a company could find it cost effective to manufacture domestically in order to eliminate a transit cost incurred with overseas manufacturing. Also, with the burgeoning of e-commerce competition is now focused on fulfillment strategies at a lower cost. This has seen many internet retailers shift from drop shipment alliances to self managed inventory management and distribution.

As a company you are entitled to visibility of the inventory you own. If this clarity is being affected by logistics it is only prudent to push the ownership and cost of inventory to the players upstream.

Postponement Strategy

This strategy is mostly applicable to the parts of the finished product that could be identified as customizable. Some examples are low tech like labels, electric plugs, and packaging while high-tech examples extend to circuit board manufacturers and chemicals. By extending the point where the good is considered finished as close to the customer as possible a manufacturer can attain more precise matching of the customized components. Since production is now considered more modular supply chains must be modified to tap inventories at different stages than they would traditionally do. Instead of a classic production line there could feeder segments which consume common inventory and downstream special segments that add custom components for different markets.

If you are wrestling with any of the following – an inability to forecast demand, an increase in demand for customization, or untamed distribution costs; this could be the opportunity to delve further into postponement strategies.

Besides Oracle and SAP, several software vendors now offer specialized Inventory Optimization solutions that are designed to integrate with existing ERP installations. Some of the vendors are :

Red Prairie
Manhattan Associates
Steelwedge Optimized S&OP
Toolsgroup Inventory Optimizer

At RJMC, we are committed to helping our clients analyze their ERP requirements and help them select solutions that match the needs. Our recent work with medium sized companies has provided us invaluable experience in evaluating inventory management modules as part of supply chain requirements.

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