In terms of inventory planning and service levels, companies can be divided into three categories: The worst company is a lot of inventory, but customers do not want, the service level is very low; the best company is the lowest inventory, but the highest level of customer service. It's easy to understand: The best corporate plan is well-done, knows what the plan customer wants, so the level of customer service is high; knowing what the customer does not plan is not, so the inventory level is low. The worst company is just the opposite. However, in the middle of the enterprise, the level of customer service is very high, but the inventory is also quite high, which is a high level of service under high inventory. Many well-established companies fall into this category, referred to as "two high" companies.
There are many inevitable reasons for the existence of "two high" enterprises
First of all, look at what companies value. Although the service level and inventory turnover should be equal, how much time do you have to talk about the service level at the weekly and monthly performance review meetings? How much time is spent on inventory? The day-to-day work conference is no exception. Let's take a look at how much time you spend talking about the shortage. The daily level of service, monthly and monthly talks, and non-compliance, and solutions, naturally spend money to eliminate disasters and increase inventory. What do you assess? This is not, the service level has been done this way, but at the same time the inventory has also gone up.
Most of the "two-high" companies are well managed and have set indicators. These indicators are nested, the result is to make some indicators far beyond the goal. For example, if you have a company, the overall service level (in stock) indicator is 95%, that is, customer orders come in, 95% of the cases are in stock. However, there are subdivisions under the overall indicator. For example, the target of key customers and key products is 98%.
The problem is that the products bought by key customers are also purchased by the general customers. They are produced in the same production line, stored in the same warehouse, and delivered in the same set of logistics system. You can't say the same product. The average customer buys, and the stocking rate is 95%; Customers to buy, the stock rate is 98%. In order to reach 98% of key customers, you only have to align all customers towards 98%.
Key products are similar to key customers. There is a manufacturing company, in order to better support new products, the demand for new products is 98%, and the general product is 95%. This is a difficult plan because there are many parts used in both new and old products. As a result, you are only approaching 98% of the target, and the old and new products have become 98%.
This also reflects the inflexibility of the supply chain: around the different business needs, the supply chain can not effectively differentiate services. This is because the supply chain infrastructure is the same set of organizations, processes and information systems. In order to achieve differentiated results, inventory and execution are planned only with the highest demand as an indicator. The result is high inventory at high service levels. Some people do not understand that our service level target is 95%, actually reaching 97%. It is too high. We must lower it to reduce inventory. You know, you cannot drop it. Otherwise, those indicators that require differentiation and higher service will not be achieved.
In addition, in some industries, such as the industrial products industry, there are many varieties, small batch sizes, and the level of goods availability is too high to be achieved, and you can't afford to make any mistakes. As we mentioned in the previous example, for a key customer, one company has set a service level of 98%, that is, when an emergency demand occurs, such as the customer's production line is shut down, or is about to be shut down, and it requires 98% of the situation. Next, deliver the goods to the customer site within 4 hours. This indicator is a very rigorous indicator on a monthly basis, especially for customers with lower usage.
The company has 16 such key customers, of which only 11 can reach a stock of 98%. In these 11 cases, if there is a shortage of 1 material per customer per month, there will be 4 customers who have changed from the original standard to non-compliance; if there is more than 2 materials, there will be 5 changes in compliance. Into compliance. This also means that the space left for the plan to make mistakes is basically zero. This also means that you have to pile up a lot of inventory, fill out all possible pits, and prevent shortages from occurring, but at the cost of high inventory.
This is why planning methods that rely on the history of requirements will suffer: you can't wait to produce the demand before you stock it; you must find ways to start the lead and meet when the customer first needs it. This is tantamount to shooting in the dark and firing as many bullets as possible. The inventory turnover rate can be imagined. When you go to places where fixed assets such as nuclear power plants, fabs, and communications networks are dense, stocks are piled up. Turning around half a year is good.
It is precisely because of such harsh performance indicators that some of the stock-reduction actions that appear to be easy to do cannot be taken. For example, there is a very expensive material, priced at 5,000 yuan, with one every two years, any inventory optimization software, will recommend that you take this material inventory level, digest this 5,000 yuan inventory. But you can't, because the two-year use of the material, it is likely to let your key customer service levels do not meet the standard.
High inventory levels are also associated with the inability to effectively set inventory targets. The goal of the service level is well established, but the measurement and management are more complex; the inventory index is a good measure, whether it is the amount of inventory or the turnover rate, it is easy to understand, but the target value is difficult to set: exactly how high the inventory, the number of turnover Is it reasonable? No one knows. Therefore, inventory is not targeted in some companies; if it is, management is less serious. Although these two indicators need to be balanced, once the problem arises, most of the sacrificed items are inventory indicators. After all, there are several people because the stock index did not reach the limit? However, because the level of service was not met, the number of people knocked on the head was too numerous.
In addition, the stock index can not reach, find some reasons to explain whether it is worth mentioning, this time was beaten, and later became a "legal" inventory. The next inventory indicator is based on this inventory, so inventory is always increasing. But the service level is not, the goal is 95%, and will not drop to 92% because your performance this time is 92%.
This does not, service levels generally can only get better and better; and inventory indicators, with few exceptions, are all the way worse.
(Note: Liu Baohong, author of the best-seller of Supply Chain Management, founder of "Supply Chain Management Column" and an MBA from Arizona State University, USA. His best-selling books include "Supply Chain Management: Solutions for High Cost, High Inventory, Heavy Assets," " Purchasing and supply chain management: A practitioner's point of view, "Supply Chain Management: A Road for Experts in Practitioners." He has been researching and practising supply chain management in the United States for more than a decade, often traveling between China and the United States. Local procurement, planning, and supply chain management talents can help local companies improve their purchasing and supply chain management levels. To contact him, email bob. or visit his website () to find the latest training information.)