How Supply Chain Orchestration Can Reduce Inventory

Posted by Brian Hodgson on Dec 1, 2017 3:38:13 PM

With supply chains evolving to become competing networks of partners, there is opportunity for companies to leverage Supply Chain Orchestration platforms to achieve additional competitive advantage. Gartner recently wrote a report that investigated how supply chain networks are integrating with each other.

As the network of networks provides the foundation for a next-generation platform, supply chain leaders will be able to leverage those capabilities to achieve higher levels of supply chain maturity - Gartner, November 2017

Orchestration

Supply chain maturity and competitive advantage are common terms to use, but how does this relate to measurable business value? In working with shippers and 3PLs, we see a number of business benefits including: increased on-time-in-full deliveries, greater operational throughput, lower transportation costs, more efficient operational and customer service teams, and reduced inventory. In today’s post we will look at how Supply Chain Orchestration can lower inventory.

#1 Leverage Network Inventory and Dynamic Sourcing

With increasing customer demands and shrinking cycle times, we see that companies are re-evaluating their inventory strategy and moving from a static model to more dynamic fulfillment. Specifically, companies are moving their inventory closer to their customers. While this could increase inventory with many more locations, by using alternate locations such as supplier and partner locations, coupled with source selection done in real-time, overall inventory can be reduced.

A simplified example of a dynamic order process with network inventory is illustrated below:

• A sales order is received with two line items for 25 of Widget A, and 5 of Widget B.

• Widget A is produced at a higher volume and available for delivery from a local distribution center to the customer. While widget B is generally slower moving inventory, the local distribution center keeps minimal stock.

• With a dynamic order process, the order can be fulfilled either using inventory from the local distribution center, a remote location, or a supplier.

• In some cases, the supplier may actually be closer to the customer. In this case, all of this customer’s orders for Widget B would be fulfilled directly from the supplier.

Beyond this example, additional factors such as the order’s weight, consolidation ability, sales volume, and time-in-transit all need to be factored into how this could be effective.

#2 Increase Collaboration and Visibility with Suppliers

Many shippers have limited visibility into their procure-to-pay process. A common scenario goes something like this, a purchase order is generated and the purchaser is provided with an acknowledgement that it was received, then there is a black hole (limited to no information on status of the order) until the product ships, at which point there is visibility to the shipment with tracking numbers. But there are a number of additional areas where increased collaboration with suppliers can lower your overall inventory like

• Sharing forecasts across multiple supplier tiers to help suppliers planning.

• Providing advanced views and updates in your inventory, enabling more pull, or vendor managed inventory models, and again, across multiple tiers.

• Ensuring suppliers provide line item details through advanced shipment notices and avoiding short or unexpected split shipments.

• Using granular views of inbound shipments and expected arrival dates to eliminate duplicate orders and inventory build-up, and sharing this extended visibility across your inventory and operational teams.

The tighter collaboration with suppliers and within operations is especially important with longer lead times and can lower expediting costs as well as the basic operational costs of staff manually checking on orders.

#3 Cut Cycle Times on Reverse Logistics

Product that is coming back to a distribution center or repair depot is another area of opportunity to leverage inventory in transit.

One customer we worked with was running an advanced replacement service for industrial spare parts. There was a network of repair depots whose service levels included a planned 9-day inspection, repair, and return process. However, there was too much variance with some cycles taking up to 16 days. Given that there was no visibility or automation in place to see what was happening in the repair depot, they had to stock additional spare parts to ensure the proper service levels for their customers.

With Supply Chain Orchestration and its increased automation and visibility to the repair depot activities, they now see more clearly when a delay is a risk and can be proactive in resolving it, which in turn enables them to maintain lower overall safety stocks.

Having visibility into what products are getting returned and transparency into the steps required to inspect, repair, restock the item will help this customer avoid surplus orders for new spare parts.

In conclusion, a Supply Chain Orchestration platform can also operate as a “digital control tower” providing visibility, collaboration, and order optimization across the supply chain.

Control Tower Checklist

Topics: Supply Chain Orchestration, reverse logistics, inventory optimization, fulfillment networks

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