Effectively managing inventory in the supply chain - Manage

Automotive Design & Production,  August, 2002  by Lawrence S. Gould

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* Can automotive do & better job at managing inventory in the supply chain?

* Yes, through data sharing,

* New technology, better marketing,

* And basic, trusting two - way human communications.

"It's not like the automotive industry has all this inventory lying around," says Karen Peterson, vice president and research director for Gartner Inc. (Stamford, CT). In fact, adds Paul Hebeler, automotive industry director for Oracle Corp., from his office in Troy, Michigan, "The industry has inventory as tight as it can get without sacrificing cost and service." The "sweet spot" nowadays in automotive, he says, seems to be in chasing premium freight cost reductions. But there is room for improvement in automotive's management of inventory. First, automotive should do unto logistics management as it's done to production management. Second, automotive should "infuse the supply chain with more information--replace inventory with information," says Peterson. Third, automotive should do a better job collaborating with its supply chain partners. Last, automotive should implement new software.

Implement "lean" appropriately

Inventory results from at least one of two conditions, says Kevin Prouty, research director at AMR Research (Boston, MA). "Ignorance equals inventory. Or variability equals inventory." (Even the leanest of automotive manufacturing operations, namely Toyota, keeps inventory, he adds.)

In the first condition, if you don't know what the guy upstream or downstream is going to do, you keep inventory just in case. (Optimizing asset utilization is another reason, but this article will skip over that.) In the second condition, you can have all the inventory in the world, yet you still might not have enough for optimized manufacturing because of the variability driven by demand spikes (namely customer orders), by the manufacturing processes themselves (such as the effect of automotive options on assembly schedules), by logistical upsets (think September 11th), or a combination thereof.

When companies try to circumvent Prouty's Little Law of The Conservation of Inventory, somebody gets caught holding the, uh, inventory. "If you push inventory away from one partner operation, it'll move out in either direction--either to finished inventory or down to the suppliers." That's fine in the short term for reducing localized costs; namely, for the partner pushing inventory somewhere else. But in terms of lifecycle costs, the carrying costs add up and too many instabilities creep into the supply chain.

The best bet is to "lean" out business operations. North American automotive companies have done this in manufacturing, says Prouty, but they haven't leaned their supply chain processes. "And I don't mean 'lean' to the point where you don't have inventory; I mean lean in the way you operate the company." For instance, instead of fighting change and trying to create a steady-state supply chain, come up with ways to better respond to change faster and more efficiently--even if that means building up inventory.

Gain visibility

Implementing supply chain collaboration, says Jim Kowalski, group vice president of automotive for Manugistics Group, Inc. (Rockville, MD), is a "great opportunity for taking some of the empty costs out of the supply chain." By the way, Kowalski defines "collaboration" as "real, two-way communication, where there are discussions about what should be done." For instance, Kowalski suggests joint capacity planning, where supply chain partners share in calculating capacities across multiple suppliers and tiers. Helping such collaboration is, for example, the Supplier Network Collaboration that Manugistics helped implement at DaimlerChrysler. Rather than transmit a series of ever-truncated electronic data interchange (EDI) commands from one tier to another over what used to take 14 days, DaimlerChrysler broadcasts demand and production information down through all the tiers of its supply chain simultaneously using email. All partners in the supply chain get notification within 24 hours--and can reply in kind, and in time to offset any anomalies coming down the supply chain.

Oracle offers similar capabilities. Suppliers can surf over to the OEM's Web portal to see data at the granular level, including customer demand, production data (line, date, and time), and billing. "There's no software to load," explains Frank Prestipino, vice president of SCM and worldwide marketing for Oracle Corp. (Redwood Shores, CA).

What are these companies doing? Answers Oracle's Hebeler, "Upgrading their technology to be more collaborative."

Better decision support

"Pure visibility by itself is real-time access to bad data," points out Prouty. Advanced planning and scheduling (APS) tools can filter those data to improve inventory visibility. In the past, optimization and constraint-based planning, says Hebeler, focused on machine capacity and production bottlenecks. Now these same tools are being applied to inbound logistics.