Anyone who has been involved in inventory management
knows what it is like to worry about stock levels. Finding the right balance
(not too much, not too little) is critical, and yet often seemingly
unattainable.
Most of the problems seen in supply chains can be linked
to "push" practices, or efforts to move inventories down the supply chain in
hopes that demand will be met when (or if) it materializes. In practice this
means using forecasts to manufacture and distribute products well in advance of
demand. When the forecast proves to be unreliable, a vendor is forced to produce
more
than will likely be required, to protect themselves from surprises. Vendors may
build and ship seasonal inventory, hoping the supply chain can run these stocks
down by the end of the season. Customers may order products early to "reserve"
capacity with suppliers, hoping they will use what they get. The effect of
either action is the same--manufacturing capacity is deployed well in advance of
end-item demand.
Some companies are using an inventory management
mechanism called stock buffers to properly integrate the links in the supply
chain. Stock buffers address the most serious coordination issue in production
ops--replenishment in response to actual demand, prevention and minimization of
excess inventories, and the identification of issues that prevent the supply
chain from achieving its goals of satisfying market demand while turning an
acceptable profit.
Rick Sawyer, the director of supply chain management for
Canadian General Tower Ltd. (CGT), is using stock buffers to maintain the
company's good customer service record. CGT is the leading North American
supplier of flexible polymer cover stocks, including vinyl, for a variety of
industries and products like automotive interiors, swimming pools, bookbinding,
roofing, and environmental containment.
The automotive supply chain is shrinking lead times
everywhere, making quick, reliable response times essential for survival.
Compounding the challenge this created for Sawyer to deliver products was the
fact that some clients were making unreliable forecasts that often left CGT
scrambling at the last minute to finish orders. The company needed to change the
inventory management function to lessen the impact of demand variability on the
plant. "The automotive industry has been putting more and more pressure on
vendors to reduce lead times," says Sawyer. "Because we have many products that
we ship repeatedly, stock buffers are a great solution to servicing customers in
a demanding environment."
Forecast accuracy is an issue in every business. Some
customers provide better forecasts than others. But instead of focusing limited
resources trying to fix the forecast, companies should change where they hold
inventories in the supply chain and how they decide what to ship. Specifically,
they would be in a much better position if
