Inventory management in IT projects

Traditionally we think of inventory management more often in the manufacturing, retailing, and transportation industries. However, it can also be focused to a project in a company.

On one other class, my group did a presentation on the IT transformation project that enabling the company to change its portfolio drastically during a short period of time. During the presentation I was asked a question that during the change in IT infrastructure, IT policy and frequent acquisition and divestiture, how do you suggest the company to manage the supply chain problem. I didn’t know how to answer that question at the time, but afterward, I put some effort to it and combining with the reading from Bain’s company. I can share some of my thoughts.

First question to ask is: Have your organization categorized your goods into safety, replenishment, and obsolete?  

 In an IT project, we have to define what the “goods” is. I think it should be a combination of talented specialists, project managers, venders, time, capital, the actual “goods” such as server, laptop, printer and so on. In this sense, I would say that for a specific IT project, the organization has to analyze the needs, what are the human resource, capital, venders needed to accomplish the minimum objective of the project; and that should be similar to the safety inventory. Then what the additional resources required are to support the project when uncertainty occurs. Finally, define those resource that are no longer productive or up to date. Those should be the “obsolete inventory”.

Next question to ask is: Is your company using the most effective method to calculate your safety stock levels?

In our IT project case, the safety stock level becomes the minimum resources required to achieve the objective of the project. In the pure inventory management case, it is suggested statistical formula can be applied to historical data to get the insight. While in IT project case, it is very hard for historical data to play a role in the human resource and time part, due to the fact that every project are different, technologies are changing constantly. But the empirical method can be applied to the tangible goods such as servers, projectors, laptops and so on. Sometimes it is hard for companies to even have those historical data for the goods, because they are provided by vendors and vendors also have to rely on their upstream source. So if the project manager wants to have an accurate delivery time of those orders, it would be very helpful if the vendors can apply empirical methods or statistical tools to their historical data from their supply chain. It can mitigate potential loss from either late delivery or the tied capital due to early booking.

But still one question remains that how do organizations determine their “safety stock” of human resource and time based on solid proof rather than solely experience?

source:

1. http://www.bain.com/publications/articles/ten-ways-to-improve-your-inventory-management-wsj.aspx

2. Harvard Business publishing-Managing Inventory by Janice H. Hammond

Getting the "Right Levels" -- Inventory Management

A major challenge in inventory  management is to determine the right amount of stock. Safety stock is needed to absorb the variability of the customer demand. An excess stock in the face of less demand would mean high inventory costs whereas less stock under high demand would mean that the customer demands won't be met which would ultimately lead to loss of customer base. Every organization wants to have an optimal level of safety capacity or buffer capacity.

So, what should be the right level of stock? The optimal level of safety stock is determined by following factors:

• Replenishment lead times: The total period of time that elapses from the moment it is determined that a product should be reordered until the product is back on the shelf available for use. The shorter the replenishment lead time, the lower the safety stock level should be to satisfy demand during replenishment. However, logistics costs are more if replenishment lead times are less.

• Forecasting : The more accurate the forecast, the smaller the safety stock needed.Usually, nowadays, ERPs are capable enough to predict the demand. However, it is not advisable to depend entirely on these systems. In 2001, Nike implemented an updated version of their inventory management software.Based on historical sales data of different products, and based on some market growth estimates, Nike would first prepare a demand forecast for different families of products. However, they ran into some serious software implementation issues  - bugs, and data errors – which resulted in incorrect demand forecast. So, Nike over-produced products that were less in demand and produced less of those product that were in high demand resulting in huge loss.

• Economic Order Quantities: It is the order quantity of inventory that minimizes the total cost of inventory management.Two most important categories of inventory costs are ordering costs and carrying costs. Ordering costs are costs that are incurred on obtaining additional inventories. They include costs incurred on communicating the order, transportation cost, etc. Carrying costs represent the costs incurred on holding inventory in hand. They include the opportunity cost of money held up in inventories, storage costs, spoilage costs, etc.Ordering costs and carrying costs are quite opposite to each other. If we need to minimize carrying costs we have to place small order which increases the ordering costs. If we want minimize our ordering costs we have to place few orders in a year and this requires placing large orders which in turn increases the total carrying costs for the period.

       We need to minimize the total inventory costs and EOQ model helps us just do that.

Total inventory costs = Ordering costs + Holding costs

       By taking the first derivative of the function we find the following equation for minimum cost

EOQ = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per Order)       (for complete derivation see            here: http://ir.washburnlaw.edu/bitstream/10425/114/1/Origins%20of%20the%20Economic%20Order%20Quantity%20Formula.pdf)    Underlying assumptions: The ordering cost is constant. The rate of demand is known, and spread evenly throughout the year. The Lead time is fixed. The purchase price of the item is constant i.e. no discount is available The replenishment is made instantaneously, the whole batch is delivered at once. Only one product is involved.      Can you point out the flaws in this approach?

      

Sources:

http://en.wikipedia.org/wiki/Economic_order_quantity

http://karlknapp.com/resources/wikisummaries/supplychain_mgt/economic_order_quantity.html

https://www.ordoro.com/blog/2012/01/24/nikes-inventory-management-solution/

http://us.dynamics.hitachi-solutions.com/blog/the-value-of-the-right-level-of-safety-stock/

http://www.demandsolutions.com/resource-center/supply-chain-glossary/supply-chain-glossary-r/replenishment-lead-time.html

http://accountingexplained.com/managerial/inventory-management/economic-order-quantity

Silly Walmart And Other Stories.

First, I would like to talk about the Walmart article. It seems to suggest that Walmart got almost everything right in its supply chain: from demand forecasting to ensure that adequate quantities of inventory got to its store locations, to good inventory management practices ensuring timely resupply orders – all operations optimized to laser-like precision. But… in the end it failed to foresee or plan for how its staffers would actually get the merchandize languishing in backrooms to the shelves? Hmm.

The causal relationship between out of stock and layoffs developed in the article is flimsy at best and not very well developed. How much of the stock out costs that have been calculated in the article can be traced solely to the inadequate staffing at stores, right at the end on the downstream end of the supply chain, and how much of it can be attributed to other factors? The comments section for that article was very interesting. One of the comments was by a Walmart store manager explaining how stock outs occur most frequently at the beginning of the month when low-income families get their SNAP (Supplemental Nutrition Assistance Program) benefits, which would seem to suggest that these stock outs occur due to product flying off the shelves. This creates a problem where there isn’t enough staff on hand to rapidly replenish the shelves from the back room. This is a problem, but then I suppose most businesses would like to be in a position where they have to rapidly replace product on their shelves. As one meme would have it:

Going off on a tangent, the Walmart website says that, “today, Walmart operates more than 11,000 retail units under 69 banners in 27 countries” (http://corporate.walmart.com/our-story/our-business/locations/). It would have been interesting if the author of the article had commented on whether there was a similar trend in other locations around the world. With locations in Africa and South East Asia, where labor costs would be lower, I imagine it would not be as big a problem as here in the United States.

Summing up on the Walmart article, in my opinion, it is somewhat naïve to assume that an organization like Walmart, known to be smart about its supply chain planning, using optimization methods that factor in variables like shortest delivery routes, would overlook something as simple as investing another $448 million in additional staff at the stores for a return of $ 1.29 – 2.58 billion.

Moving on to the article on building flexible supply chains for uncertain times, with its emphasis on having an agile, dynamic, proactive, collaborative and responsive supply chain planning process that revolves around a low-response time decision-making process that responds quickly to demand volatility by having cross functional teams, that provide a cohesive and organization-wide, holistic response to changing market dynamics and price fluctuations across supply chain components, made for sensible reading. Mostly – except for the advice to “…deal with changing conditions by making production processes more flexible—shifting manufacturing locations quickly as shipping costs change, for example.” Written in March 2009, with the global crisis of 2008 still underway, and with most organizations engaged in aggressive cost reduction strategies, this sage’s advice to them, about potentially investing millions in moving capital equipment around or setting up new manufacturing locations is a bit hard to swallow.

Furthermore, this article and the article, Ten Ways To Improve Inventory Management, for me, overlook a critical factor – critical for any supply chain that is global at least. And that is the relationship between international trade dynamics and inventory management – how one impacts the operational effectiveness of the other.

In The World Is Flat, Thomas L. Friedman talks about globalization forces and technology as one of the great enablers that flattened the world, making it more interconnected and transparent across borders. There are other factors which have contributed to the globalization drive. The work done by organizations such as the World Trade Organization, United Nations Conference on Trade and Development, World Bank, along with the evolution in global trade in terms of bilateral and regional trade treaties, free trade agreements and the rationalization of tariff structures (which have traditionally been used as a tool of trade regulation by countries, geared towards protectionist policies). All of these factors combined have given us a world where trade across borders – the movement of goods and, today, even services, has become more fluid.

Resultantly, organizations have been able to take advantage of expanding globally, and by extension, taking their supply chains across borders to take advantage of economies of scale made possible due to labor differences – both in cost and productivity. However, there still remain many impediments to a truly free global market, unconstrained by borders. Different rules and regulations surrounding import / export requirements, inefficiencies in say port operations, geopolitical uncertainty, border delays, inadequate infrastructure and even blatant and ubiquitous corruption, are just some of the factors that play a major role in hampering the free flow of goods and services through global supply chains – and by extension have a cascade effect on how nimbly organizations with global supply chains are able to plan and manage their inventories. 

Managing Uncertainty in Supply Chain

Managing Uncertainty in Supply Chain

One of the most important and emerging phenomenon in supply chain management is managing uncertainty that is believed to become one of the winning featured for any firm. Accuracy in predicting uncertainties and the ability and preparedness a firm displays in managing them will decide the competitive advantage of organizations in future. Like all other management areas inventory and supply chain decisions also need accounting for uncertainties. The modern research and analysis has proved that the main objective of supply chain is to identify and manage uncertainties because failing which can lead to an inefficient manufacturing, supply and sale activity.

De Leeuw (2000) identifies following five as essential requirements for an effective system:

1. The managing system should have an objective and corresponding performance indicators to manage the supply chain in the right direction.
2. To estimate future system states one has to have information on the environment and current supply chain state.
3. There should be enough information processing capacities to process information on the environment and supply chain state.
4. In order to direct the managed system in the right direction one should be able to estimate the impact of alternative actions. This requires a model of the system, presenting the relationships between available redesign variables and performance indicators.
5. There should be enough potential control actions.

 According a paper “Management of Uncertainty in Supply Chain” by Prof. D. P. Patil (http://www.ijetae.com/files/Volume2Issue5/IJETAE_0512_50.pdf) missing any of the above features will lead to uncertainty. This paper also suggests some supply chain planning tools that include demand planning, supply network planning, production planning and availability planning. One of the ways to manage uncertainties suggested by this paper is Postponement Strategy which suggests delaying some supply chain activities till the actual demand by the customers is revealed. It hints at:

• Purchasing Postponement
• Manufacturing Postponement
• Logistics Postponement
• Time Postponement
• Product Development Postponement

This strategy seems to work in lowering the bullwhip effect mentioned in the article by McKinsey & Company which points toward the rapidness of shifts in future demand.

Managing for uncertainties make supply chain processes less efficient but at the same time ignoring them has a cost associated with it too. Therefore, the key is to design strategies with minimal costs for the buffers that uncertainties ask for but more efficient and responsive supply chains.

Sources:

http://www.ijetae.com/files/Volume2Issue5/IJETAE_0512_50.pdf

http://growingscience.com/beta/uscm/1273-supply-chain-next-generation-issues-and-concerns.html

www.mckinsey.com/insights/operations/building_a_flexible_supply_chain_for_uncertain_times

From just-in-time delivery to just-in-time manufacturing

Last week we discussed in some detail the bullwhip effect, and its intensification as propagation delays between consumers and suppliers increases. As this week’s McKinsey’s article points out, the bullwhip effect is tightly related to issues of inventory, and a companies inventory-to-sales ratio. Exhibit 2 of the article demonstrates the recent intensification of this problem in the US, and accordingly highlights increased supply chain flexibility as a major method to justify these inventory issues.

Supply chain flexibility is becoming a much greater concern for companies nowadays, as is evident with the amount effort being put into development of “just-in-time” inventory.  The following article from the Washington Post (http://www.washingtonpost.com/blogs/the-switch/wp/2013/08/29/what-happens-when-you-mash-up-3d-printing-and-amazons-same-day-delivery/) entitled “What happens when you mash up 3D printing and amazon’s same day delivery” explains how just-in-time inventories have become increasingly important, especially for eCommerce giants like Amazon. They are already taking advantage of networked warehousing and expedited shipping, but the nascent technology of 3D printing and digital manufacturing is an untapped resource for just-in-time production. Instead of predicting demand ahead of time and either stocking inventory in distributed warehouses near to customers or spending inordinate amounts on shipping products last minute overnight, companies will be able to reduce carrying costs by manufacturing products at the point of sale and thus need only store raw material in a much more dense form, and only convert these materials into a final good when assured that finished good has already been paid for.

For myself, this has been a major driver in my current business venture with PieceMaker Technologies, a 3D technology startup creating a Factory in a Store system for brick and mortar retailers. We are making it possible for small, independent retailers to get into the 3D printing game and for the first time offer just-in-time production to their customers, and compete with discount and online retailers. It will be interesting to see how just-in-time changes and how the dynamic between retail and eCommerce will transform.

How important are supply chain databases to efficient inventory management and supply chain optimization?

The management of efficient inventory management IT systems is essential to supply chain optimization, as was shown at Dell. The Dell supply chain management database systems handle very important business functions that support worldwide manufacturing supply chains, including the Dell inventory management model and delivery of computers, accessories and supplies. Unreliability and a lack of cost-efficiency in the Dell supply chain can cost thousands of dollars per minute in factory time.

When Dell was a smaller company, its IT group ran its supply chain database applications on large, expensive servers. As the company grew, servers lacking the necessary capacity had to be replaced with even larger, more powerful servers. The Dell supply chain database handles a huge amount of transactions and pieces of information. The inventory component manages more than 3 million inventory movements daily from stock rooms to factory floors across all Dell sites, along with the corresponding 3 million messages transmitted to different systems for reporting, analysis, and factory scheduling.

 

By 2005, many batch processes were taking a long time to be completed. The Oracle Database version was also outdated and unsupported. To continue using this system would have called for a large investment in upgrading these large, expensive servers. Dell decided to migrate to more cost-effective, standards-based PowerEdge servers running Oracle Real Application Clusters 10g. This helped enhance database performance and allowed for scalability for future growth.

 

By sharing a large database across multiple servers, Dell can easily utilize additional low-cost servers when necessary to handle increased workloads. Dell has implemented this type of system for operations at multiple locations around the world. The most significant time savings occurred in the data extraction for all material transactions, which dropped from almost 5 hours to just 35 minutes, an 88 percent improvement. The time for the entire end-of-quarter jobs processing also decreased from 31 hours to 23 hours.

 

Supply chain management databases are essential to Dell operations around the world. Factory operations and internal systems depend on these systems to provide real-time information about important business functions and inventory management. By moving the systems to Dell servers, significant additional spending on less efficient proprietary servers was avoided and enhanced performance was attained.

 

It makes one wonder….how can similarly efficient databases be used for optimization of the inventory management processes of other companies within and outside of the IT field?

 

Sources

http://www.dell.com/downloads/global/power/ps2q07-20070254-jaffe.pdf

http://www.scdigest.com/experts/DrWatson_13-11-20.php?cid=7603&ctype=content

http://www.scdigest.com/experts/DrWatson_13-09-30.php?cid=7451

http://www.scdigest.com/EXPERTS/DRWATSON_13-09-25.PHP?cid=7445&ctype=content

 

 

Take the Inventory Management to the cloud

What are the efficient ways for companies to manage their inventory and track their assets?

Manually count? Too slow, too outmoded, and too problematic.

Nowadays, almost every product you receive from a company has a unique barcode, which is tracked by every move from factory to your hand. Besides the unique barcode used for tracking and verifying identity, many companies also include a returning label for each product in order to better and more efficiently manage the returned product and current inventory. As I can see from the parcels I received, nicely wrapped product bears a barcode and an additional returning label/returning form. It’s easier for both clients and organizations to track and manage the product.

Barcode tracking is not a new concept to us. Traditionally, companies use client/server based inventory management and asset tracking application. As the inventory management becomes an increasing digital practice, forward-thinking companies are trying to capitalize on technological advancement and to implement new solutions to enhance their daily operations. Except for the traditional scanners, smartphone containing tracking applications are now widely introduced. Thus the more accessible smartphones allow companies to process information with greater efficiency. What’s more important, smartphones with online capabilities could enable users to store scanned information and data in new different ways.

In big data era, Cloud Computing has become a major component of information sharing and analysis. Many organizations are benefiting from the ability to share and access data remotely from a number of devices. So changing inventory management from client/server based to web-based platform, companies in the supply chain system could save costs as well as increase operational efficiency by saving deployment and overall maintenance time and increasing real-time collaboration within the team.

Cloud-based inventory management and asset tracking applications are faster to deploy and involve lower IT infrastructure costs than the traditional client/server based product.  Additionally, any updates or enhancements to the platform are supplied automatically to the user; companies do not have to purchase and individually install software updates to every individual server and/or desktop computer within the organization — as they would need to with a client/server solution. 

Here is one example for cloud-based inventory management and asset tracking software:

Fishbowl Inventory with Hosted Services.

Fishbowl is the #1 selling inventory management software that integrates with QuickBooks and provides the following powerful features:

QuickBooks integration

Multiple locations

Order management

Barcode tracking

Serial and lot number tracking

Manufacturing capabilities

Asset tracking

But here is my thought: with all the good features about cloud computing, web-based inventory management and asset tracking becomes more and more popular. When all the data is stored in the cloud, how can a company to keep its confidential business intelligence secure? What contingency plan or prevention methods would be if there were a data breach? Increasing the operational efficiency and cutting costs are the pros of web-based platform, companies should also pay attention to data security.

Reference:
1.http://www.fishbowlinventory.com/articles/inventory-management-software/cloud-based-inventory-management/
2.http://www.manufacturing.net/articles/2013/01/taking-inventory-management-and-asset-tracking-to-the-cloud
3.http://labelmatch.com/blog/to-the-cloud-inventory-management-innovation-increases-importance-of-label-accuracy/

On Demand Packaging customizes delivery boxes to fit each order

The Council of Supply Chain Management Professionals (CSCMP) has selected Staples and Packsize International Inc. to be the winning recipient of the 2013 Supply Chain Innovation Award Competition. Staples, the world’s largest office products company and the second largest internet retailers, has adapted a new packaging technology called On Demand Packaging that produces customized delivery boxes for each order. This new packaging technology is developed by Packsize International Inc., a provider of lean packaging systems. On Demand Packaging focuses on producing delivery boxes that have the right sizes to fit each customer’s order.

On Demand Packaging is really a new packaging technology that enables the supply chain system of packaging industries such as Staples to be more integrated, and it creates a customer-driven supply chain instead of a producer-driven one. So what exactly is On Demand Packaging? The concept is developed from many customers’ dissatisfactions when their ordered item comes with an oversized delivery box, which for many of the customers is a large trash sitting in their houses. The customers need to breakdown the oversized box, clean the packing fillers and recycle those things. On Demand Packaging is able to custom delivery boxes through an integration of boxes manufacturing system and packaging system. The following short clip may give you a better sense of On Demand Packaging:

On Demand Packaging can largely improve packing supply chain system in several ways. It is less costly and more sustainable. It reduces air pillow use by 60 percent and average cardboard box size by 20 percent, which it said represents an estimated annual carbon footprint reduction of 30,200 tons, or roughly 120,000 trees. Also, it allows more shipments to fit on each line haul and more orders in each delivery truck, and it cuts the costs of delivery boxes storage in the warehouse.

The traditional packaging supply chain system is flawed in several ways. First, it is costly because it has to use more cardboards and packing fillers than what actually needed. Second, it is a time-consuming process because boxes needed to be transported from boxes manufacturers to packing companies, and workers need to come back and forth between the warehouse and packing supply chain for boxes. Third, it requires a lot of space in the companies’ warehouse to store those boxes for anytime usage. Fourth, it is neither customer-friendly nor environment- friendly because of excess usage of paper and plastic. Finally, variability and uncertainties are underlined when the companies need to forecast the number of boxes and the sizes of boxes to be ordered from boxes manufacturers.

On Demand Packaging reduces the costs of packing supply chain system to achieve efficiency and sustainability by integrating boxes manufacturers and packing supply chain system, eliminating the needs for forecasting thus reducing variability, and providing a customer-driven production line. However, On Demand Packaging technology is expensive to implemented, and it is possible that companies won’t profit from their supply chain in the short term when they implement this new technology. The question is how should we balance between this short-term and long-term benefits?

References:

Staples and Packsize Win 2013 Supply Chain Innovation Award

http://finance.yahoo.com/news/staples-packsize-win-2013-supply-182000968.html

Staples takes steps to reduce packaging size, increase supply chain efficiency

http://www.logisticsmgmt.com/article/staples_takes_steps_to_reduce_packaging_size_increase_supply_chain_efficien

Packsize International Inc.

http://www.packsize.com/

Packsize International’s blog with video

http://blog.packsize.com/staples

After learning about the bullwhip effect in this week's readings and learning how variations in information up and down a supply chain can lead to greater inventories--and less liquidity for businesses--I cannot help but think about an overarching theme that is crucial to effective supply chain systems: communication and information sharing. While the McKinsey article did mention greater information sharing and better IT systems are beneficial to curbing the bullwhip effect (Christoph Glatzel, Stefan Helmcke, and Joshua Wine 2009), I do not think the article did a good enough job of specifying ways that information, communication, and relationship-building can lead to better inventory management. 

In the first week of class, we read about how communication, trust, and strong relationships are essential components to supply chains. It is clear to me that these concepts are critical to mitigating the impact of the bullwhip effect on businesses. Businesses should think about how to incorporate existing technologies and better methods of communication within a supply chain to ensure that up-to-date information is providing accurate demand forecasting along the various components in a supply chain. An article I read out of the University of San Francisco addresses this subject. It recommends that supply chains use point-of-sale data (POS) and that such data should be made available to all partners in a supply chain ("How to Manage the Bullwhip Effect on Your Supply Chain"). The article then suggests that entities can access these data using a vendor-managed inventory (VMI) system to provide a platform for greater sharing among cogs in a supply chain ("How to Manage the Bullwhip Effect on Your Supply Chain").

The idea of a vendor-managed inventory system is fascinating to me because it shows how technology, communication and information sharing can make the process of inventory management and purchasing new inventory more efficient. In such a system, a retailer that sells produce (for example) will not need to keep track of their produce inventory to order more produce from the supplier when it runs out of celery, carrots, lettuce, etc. Instead, through POS data and electronic sharing, the produce retailer's supplier will be able to keep track of the retailer's inventory and replenish the out-of-stock items automatically ("Definition of Vendor Managed Inventory"). This system prevents companies from miscalculating demand and ordering too much inventory, which (as public policy and management majors in financial analysis know) can free up cash for companies to reinvest in other components of their business. 

While these systems are beneficial to the efficiency of a supply chain, a VMI does take work away from staff. While the Vendor Management System website, http://www.vendormanagedinventory.com/setup.php, does say that this will allow employees to focus their attention elsewhere, will senior management feel the same way? When speaking of low-skilled work, will senior management actually find other uses for employees whose former jobs were to count inventory? Could VMI systems lead to layoffs and a new stream of structural unemployment for inventory or stocking employees?

Sources:

Christoph Glatzel, Stefan Helmcke, and Joshua Wine 2009, "Building a Flexible Supply Chain for Uncertain Times," retrieved from http://www.mckinsey.com/insights/operations/building_a_flexible_supply_chain_for_uncertain_times.

"How to Manage the Bullwhip Effect on Your Supply Chain", retrieved from http://www.usanfranonline.com/managing-the-bullwhip-effect-on-your-supply-chain/

"Definition of Vendor Managed Inventory", retrieved from http://www.vendormanagedinventory.com/definition.php

Inventory Management for Start-Ups

There is no easy way to aboard this topic, because there is not good sources for it, and most of them are simply blogs (yes, like this) with good and sound opinions, well defended, but contradictory among them.

Some people says that spreadsheets are a good tool for small business (I'm not implying SB and Start-Ups are the same, but you can think they are similar on the sake of the argument), and spreadsheets in the cloud are even better because you can update it from distributed locations, over the internet and even on smartphones. Lisa Girard sets it on her list "common mistakes entrepreneurs make in managing their inventory" she quotes an IT logistics Service company director to bold that changes can be lost, records can be accidentally deleted  and synchronization has no foolproof on those systems. Any of them, a disaster for the inventory control. I adhere to her suggestion of an app for accounting, in order to use the inventory control included, and have a sort of inventory valuation.

Before having to perform a manual inventory and decide about the IT tools to keep it accounted, it is necessary to trace the policies to keep the inventory build-up controlled.  This start at the very business plan inception.

You should estimate the market size beforehand, and if you got capital from an angel investor or venture capitalist, your estimation have passed through a thorough analysis and validation... otherwise, be careful, check it again.

Much like big companies intend to forecast the demand for the next day, month, quarter and so on, it should be done by the entrepreneur. The exigence level is even harder... the entrepreneur can afford losses.

When it comes to a sub-product,  or any kind of post-manufactured product, the new venture attempt to get its inputs at the lower possible price (trying to demonstrate financial viability). It forces to buy some inputs in excess, far beyond the productive capacity or the demand in the market. Grand ma's home results the storage location of packaging materials for the next year, just because the provider offered an unbeatable price... But, as at any company, inventory in excess is work capital locked.

You can ask to any failed entrepreneur, they will have (almost for sure) two things in common:

• They run out of money in the bank
• They still have a certain amount of inventory as a souvenir for visitors. 

The answer can be guessed in the "lean manufacturing" arena (What is Lean Manufacturing? [infographic]), getting the key points to apply on the inventory management of an emerging company.

The remaining question is: How to get an impressive presentation for prospective investors with conservative production figures? 

References:
What is Lean Manufacturing? [infographic]
 http://unitherm.com/blog/manufacturing/what-is-lean-manufacturing-infographic/>

Five Steps to Painless Inventory Management
Read more: http://www.entrepreneur.com/article/220631#ixzz2rjBRxbBN"

Just-in-Time Distribution

Just-in-Time Distribution

I read a New York Times article* about a shift towards just-in-time supply chain (stocking, distribution and delivery) practices across industries. Although this shift has been happening for decades, it has been seeing a lift with the rise of natural disasters such as Hurricane Sandy. Unexpected natural events can disrupt regular transportation and distribution. Thus, having small, accessible inventory hubs allows retailers and other businesses to be less vulnerable to supply chain problems. During Hurricane Sandy, ports along the East Coast were affected (non-working or working at less capacity) for weeks. In addition, companies with less flexible supply chain systems are more affected by vacillations in transportation and energy costs. Ranger Steel, for instance, responded to spikes in fuel pricing by building distribution centers across the nation.

Another advantage to just-in-time supply chain practices is their resonance with today's consumer expectations. A retailer who has faster access to more varied inventory can ship speedily to customers, and win market share. This also allows the retailer to be more responsive, precise, and detailed in their forecasts and purchases. Purchasing smaller quantities of products allows, on some level, greater control and awareness of product flow.

Question: What might be some disadvantages of just-in-time distribution and supply chain practices?

*http://www.nytimes.com/2013/02/13/realestate/commercial/new-hubs-arise-to-serve-a-just-in-case-supply-chain.html

How Does Technology Enhance Inventory Management?

Inventory management is recognized as a pearl on the supply chain management in that inventory is basically the main actor in the supply chain, from raw material to inventory in process to finished inventory. Inventory also is worthy for attention in that cash is caught in it and the turnover of inventory concerns the efficiency, customer satisfaction and revenue of a company. Carrying too much inventory might lead to large warehouse rental bills, inventory obsolesce and cash caught up. Carrying too little inventory might lead to shortage of inventory thus lose customers. Therefore inventory management is critical to a company in many sense and companies have realized that fact, leading to many software developed to help companies manage their inventory. This article aims at introducing how technology helps inventory management process.

First, inventory management software enable company to balance the seemingly paradox between sale fulfillment and inventory investment. As mentioned earlier, too much inventory catch up investment in inventory while too little inventory might miss contracts and lose customers. The optimization of inventory holding level could be accomplished through adjusting it according to algorithm provided by inventory management software. Those software, with each company latest data plugged in, provide sensitivity analysis of inventory level so that management could choose in favor of its best interests.

Second, those software provide company projection of future change in inventory. Using historical and customer behavior data, software forecast the future outflow of inventory; given the optimized inventory level and sensitivity range mentioned above, software can calculate the balance of any moment in a period of time in the future. With the safety inventory calculated, software is able to warn company about shortage or excess in inventory and what kind of inventory particularly based on the turnover of each kind of inventory. Company would be able to adjust their inventory level according to the warnings provided by software.

Third, software are also able to provide company with more efficient inventory policy, for example replenishment cycle, storing location and safety stock level. These more efficient policies would complement the projections so to make the optimized target be fulfilled through daily operation of a company.

To summarize, technology provided by software would enhance the inventory management in a more optimized and efficient manner.

References:
http://www.justenough.com/inventory-planning-software/
http://www.parkeravery.com/pov_InventoryPlanningMethods.html
http://www.oracle.com/us/products/applications/047071.pdf