Waste in the supply chains of process industries - or slow and obsolete inventory - amounts to about 0.3 percent of revenue. That's significant, says Lora Cecere, industry analyst with Altimeter Group, but few people want to talk about it because it signals that the supply chain is not working effectively.
Slow and obsolete inventory is probably not the most exciting of topics, but it is quite important to those charged with cutting fat out of the supply chains of process industries. "Who wants to talk about the inventory they wrote off last year?" Cecere asks. On the other hand, "If you're not writing off much, then you really are much more effective."
A root-cause analysis will likely show that most SLOB comes from new-product launches that don't quite meet expectations. "We really need to look at the rate of change of that new-product launch and react very quickly through S&OP processes," she says.
Secondly, you need to move the product though the supply chain, and S&OP is an effective technique to shape demand. "We need to identify it quickly and move it quickly because the quicker we get rid of it, the more we can maximize revenue."
Third, you must understand the form and function of inventory and how they come together to have the right levels when and where you need it.
Cisco exemplifies a company that got it right in the recession. Very quickly its leaders saw the rate of change in the economy and were able to focus on the supply chain and "put their finger" on moving slow-moving inventory.
Du Pont probably learned the most from the recession, Cecere says. "Once they identified [SLOB], they really moved on managing the inventory and mobilizing. You won't catch them in that kind of situation again."
