Managing inventory is not a one-time event. Because the business environment is continuously changing, adopting the right supply chain posture must be an ongoing pursuit.
Is Inventory Optimization an Unending Pursuit? (Part 3)
Think of it as an ongoing process that reflects and responds to changes in the business environment. The answers to the five questions discussed previously are a moving target. For example, today’s micro-segmentation strategy may not make sense tomorrow. For this reason, inventory optimization leaders are those companies that have created an ongoing capability to monitor conditions across the supply chain — from rising transportation costs to dramatic shifts in demand — and adjust inventory levels accordingly.
This is the area of performance that separates the leaders from the followers. Best-in-class inventory strategists continuously monitor and re-align their supply chain posture so that it reflects current business conditions. How many business failures could have been averted in the last two years if companies had responded more proactively to changing conditions?
Leading organizations are implementing a number of end-to-end process changes — including the use of interactive process playbooks and weekly plan-do-check-act cycles — to keep the inventory strategy on track. In the case of missed sales targets in one specific region or store, inventory strategies based solely on math algorithms might sense a forecast error and recommend short-term fixes such as shifting products within the supply Obviously this is an expensive proposition, especially in today’s environment of rising logistics costs.
Instead, best-in-class businesses have instituted a continuous process in which issues like regional sales declines due to poor stock management are not only addressed in the short term, but also eliminated in the longer term through an exhaustive root-cause analysis.
Drilling down through the supply chain, inventory strategists work to understand the reason for a local drop in sales by asking such questions as: What are the unique buying patterns in this region? How do prices and margins compare with other stores or geographic areas? Would a different SKU sell better? Can we shape demand through promotions?
With the advent of sophisticated modeling and analytics tools, inventory managers are also better equipped than ever to anticipate demand changes before they occur, and adjust inventory accordingly. By gathering data and insight from across the global, end-to-end supply chain, leading businesses can quickly sense and respond to changes in consumer behavior that are likely to have a significant impact on inventory levels.
For example, the swift and unprecedented drop in demand for high-tech consumer products in 2008 caught many suppliers unprepared. Saddled with high inventory levels and associated carrying costs that significantly eroded their gross margins, these businesses, as a result, will face long-term financial challenges. Not only did they lose money in the short term, but they will also have a hard time supporting the product innovations, consumer promotions and other initiatives that support future success.
For many businesses undertaking the challenge of inventory management, the journey ends at generating optimum inventory targets — and checking performance against these targets once or twice a year.
A New Approach to ERP Customization written by Avshalom Aderet, Ph.D. provides a smaller company’s perspective and particularly the challenges with many ERP software implementation and ERP systems. For smaller companies the benefits of ERP are quite significant and there is a large opportunity for ERP software providers, ERP consultants, and ERP implementations to adapt to the demands of smaller companies.
A New Approach to ERP Customization
Businesses all around the world are increasing their reliance on ERP
programs as a cost efficient alternative to their current manual procedures
or their piecemeal software applications. However, current ERP programs
suffer from a number of shortcomings which make it especially difficult for
the small/mid size organization to enjoy the tremendous benefits of ERP:
(a) Customization is costly, time consuming and, in many cases, impractical.
This leads to a situation in which the organization must change many of its
work processes and to adapt to the ERP program rather than the other way
(b) Implementation of an ERP project is a long process, exhausting precious
time of the firm’s key people and usually interfering with the on going firm
(c) Poor training and inappropriate preparation of the firm’s personnel
results in poor usage of the system and insufficient exploitation of the new
The Customization Issue
ERP vendors are well aware of the need to tailor (or retrofit) their
packages to the specific requirements of industries and customers.
A single vendor who wishes to serve many vertical markets (industries) has
* To support different brands of the package – a costly and cumbersome
option which was abandoned by most ERP vendors.
* To mesh all brands into a single package, where “branding” for a specific
industry or customer is done by parameters which are selectively flagged to
adjust for their “unique” needs. This option is used by most ERP vendors.
However because the vendors need to mesh the needs of different industries
within a single, tightly integrated SW package, this “flagging process”
makes the customization process complex and expensive. Furthermore,
tailoring to a specific customer that is not answered for within the given
parameters is harder still.
* To provide an integrated package that permits on-site tailoring which
meets specific needs. Only Priority, with its SUPERset technology, provides
“Active ERP” refers to the incorporation of triggers, alerts and workflow
procedures into the logic of the ERP system. These differ significantly from
one customer to another, and even among different departments of the same
customer. Therefore, their effective incorporation into the ERP program is
critical in a true customization of the software to the customer’s needs.
However, eventhough workflow and business rules have become almost mandatory for ERP systems, yet, all ERP systems on the market today require users to hard code (in the source code) triggers, alerts and workflow procedures that are not predefined. This forces them to recode the triggers and procedures
when installing the next release (upgrade)……….
The Problem of ERP Implementation
Because of the need to adapt the generic software to the specific needs of
the firm, ERP vendors were required to provide tools and utilities that will
allow the firm’s in house IT personnel or independent consulting firms to
customize the software. Actually, customization and implementation of ERP
software became an industry on its own. AMR Research Inc. estimates that 75%
of the ERP market size relates to programming and consulting services for
the implementation of ERP in the organization. The customers also spend
several times more money on ERP associated services compared to the purchase of the software license. The industry standard is 3 to 5 between amount spend on software purchase versus amount spent on software customization and implementation services.
With the evolution of the “Active ERP” systems, the customization issue
becomes even more critical. Active ERP systems incorporate workflow,
triggers and alerts as an integral part of their logic. These processes are
more susceptible to be customer specific and dynamic over time (and within
the same organization). The current ERP programs do not provide an adequate
solution to this problem.
The Solution of Current ERP Programs
The architecture of most ERP systems may be termed the “total package
approach”. All customer-specific functionality must be included in the
“main” single-layer package. A “customizer” is provided to “tailor” the
package to the customer’s needs out of the massive “main” package. However,
the “customizer” is limited in the scope and type of modifications that can
be offered. Any functionality that requires “add-ons” of tables, columns
and -- more importantly -- logic, has to be incorporated by the vendor’s
development team into the “main” package.
Obviously, meshing the specific needs of thousands of customers into a
single coherent package is a nightmare even for the most talented system
analyst. That scarce resource of system analysts who can do the job becomes
a real bottleneck for customer requests. Implementation processes could drag
on for months and years as customers “wait their turn” for their own
modifications to “clear” the vendor’s development team.
Complexity also prevails during the implementation process at a customer
site. It takes a top quality expert to sift through a mature “main” package
incorporating a massive volume of functionality so as to “tailor” processes
as required by the customer. Although some vendors have invested heavily in
trying to simplify that process, it still takes a large amount of time and
effort to do the job.