“Google, what is the best inventory management software?”
“Hey, Siri, what is a Demand-Driven Supply Chain?”
Suppose you are like me; you embark on the exercise of doing an internet search to find the best fit for your Supply Chain inventory management. In that case, you will face a long list of results, a lot of advertisements, and ultimately not necessarily the desire to go further.
How to choose between inventory optimization software, or switch to a Demand-Driven transformation project? Or do we have to make a choice between both solutions? Can we implement a software and a new supply chain methodology?
If we refocus on our objectives as a Supply Chain manager, what are we looking for?
- An inventory reduction or at least an improvement in our inventory’s quality
- The Customer’s service improvement
- A better planning reliability
- Get the tools to simplify and have an efficient management
- And other benefits such as resilience, agility…
In this case, two potential solutions; either you set up a management tool to improve your data’s readability or change the management method of your supply chain.
Let’s have a look at these two options…
The choice of inventory management softwares
Inventory management and optimization softwares are positioned as ERP module or add-on whose focus will be on improving inventory performance. This, therefore, means working on an appropriate level of inventory level, neither too much nor too little.
How?
Using algorithms, which will analyze the ERP configuration by detecting inconsistencies and areas for improvement.
Some examples of parameters to monitor:
- Poorly configured batch sizes
- Wrong order points
- Inconsistent deadlines
- Safety stocks not updated for too long
- Obsolete ABC RRS classes
- Kanban loops reviewed for the last time 2 years ago
- And many others …
All the difficulties are to keep up to date these numerous parameters on thousands or even tens of thousands of articles regarding the effective demand type of our products.
This tool’s benefits are there in the simplification and prioritization of these configuration actions. They allow also to provide a same vocabulary along the supply chain and up to date routine on parameters optimization. Most of the time we are so much focus on the execution then we forgot the basis, our systems are data driven and the datas must be accurate!!
Change our supply chain management methodology
What about the Demand Driven Supply Chain methodology?
In dozens of internet search’s results, between software publishers and consulting firms, you should find the site of the Demand Driven Institute (DDI).
Before being supported by a set of tools, it is a methodology. It is an approach to the overall management of the company. This methodology is focused on the information’s share related to the market, whether for the operational or strategic time horizon, to allow the company to adapt its decisions to the changing environment.
Here, the target is to prepare to lead the change for the company’s ROI improvement.
The benefits announced are those mentioned above. The positioning of strategic stocks (the decoupling points) in the supply chain (ideally End To End), the protection of these points with scalable buffers, and pull-flow planning make it possible to obtain the announced benefits.
Carrying out this type of project is more complex than the quick summary above; team building will be the foundation of a successful transformation. Behavior change must also be considered, and the whole company must move in the direction of a “Demand-Driven” operation.
For the past ten years, the Demand Driven Institute has been developing the body of knowledge on Demand Driven approaches, also including processes for piloting the operating model at the tactical level (Demand Driven S&OP) and the strategic level (Adaptive S&OP).
Another significant benefit with the Demand Driven MRP is the simplification of piloting activities, and visual management. (You can have a look at those testimonies from Figeac Aero).The varying parameters mentioned above will be visible (a large batch size through the green area of the buffer, for example). This will contribute to an action list for improving the system parameters.
This means that the parameters that inventory optimization software will challenge are at the heart of the proper functioning of a Demand-Driven model: batch size, deadlines, allocation of the suitable buffers profile to an item, ….
Can we combine the two solutions?
If optimization algorithms make challenge and improve parameters’ reliability, there is no reason that this does not benefit the reliability of the Demand Driven model.
Not to mention the artificial intelligence that drives the Supply Chain, the use of optimization algorithms allowing better configuration and monitoring of the Demand Driven operating model seems relevant.
For example:
- Analysis of data history to automatically size buffer profiles
- Automatic detection of parameters to change and generation of an action list
- Algorithms to guide decision-making to develop the operating model during DDS & OP (upcoming article on our thesis work on the subject)
Is the assumption of having reliable parameters over a long period still valid?
In our current world, this no longer seems to be the case. These tools to help adapt management parameters are essential, but beyond that, people’s processes and training to take these inevitable adaptations into account are even more strategic.