Cash is King – Now More Than Ever

Cash is King – Now More Than Ever

In an article last year we discussed the importance of inventory and its “lubricating” effect on a supply chain by using working capital to balance the service delivered whilst optimising operating efficiency as measured by OEE.

Since then the full impact of the Covid pandemic has been felt and as the world emerges back into life there is a perfect supply chain storm emerging:

• Radically different and less predictable demand patterns
• Pressure to have multiple manufacturing sites that create more resilient supply chains
• The ever-present threat of Covid 19 disrupting supply

All of these are competing with the need to conserve cash, whilst demanding more.

This article considers how understanding your inventory health provides the insight to inform strategies and tactics to help you profitably serve your markets whilst controlling working capital.

First, we need to take a step into another lifetime, or in truth about six months ago. In that time supply increasingly exceeded demand and as result lowest cost manufacture and ever increasing SKU’s/market segmentation was a driving force. If we add in the emerging capabilities of the data driven 4th Industrial Revolution, we were building more highly tuned but less flexible supply chains.

These required manageable predictability of both demand and supply, neither of these reflect today’s reality. Massive swings in demand and supply have left even the most sophisticated organisations with “warehouses full of stock” whist flying parts around the world to stop supply chains being starved of inventory.

The blunt reality is that most cannot afford to provide previous levels of service across all markets and segments whilst the world is heading for its deepest recession in living memory and we are looking for global resilience in our supply chains by creating multiple points of manufacture. The emerging reality is that we need to:

• Simplify our product portfolio
• De-tune the service we offer to all but our most important customers/segments
• Identify the critical products that must have multiple points of manufacture, otherwise only make at a single location and accept that we need to hold inventory

To most, including me, this goes against everything that we have strove for over many years, but the world today is, and will remain, radically different.

Building the solid platform on which sophistication can be added when it is economic to do so, requires two interrelated understandings:

• Where and how complexity is adding to your cost to serve in and destroying value generated by products
• How inventory can be used to enable simpler models that drive operational efficiency and provide an affordable service

Iter Consulting, with its partner AlignAlytics, has used the last few months to integrate detailed inventory optimisation into a transaction level, cloud-based, cost to serve modelling capability that helps you understand how to simplify, increase the resilience and above all minimise the drain of working capital whilst addressing customer needs.

Tim Richardson
Development Director
Iter Consulting