For years, global manufacturers have relied on excess inventory as a reliable insurance policy against unexpected business disruptions. It was a reliable method to help boost critical OTIF metrics since the opportunity cost of not selling or supplying a product to a ready customer has multiple adverse effects. The challenge with that strategy is that each business cycle in which a company keeps excess inventory on hand means more time holding wasted working capital, meaning lost productivity for money.
Balancing working capital and risk has been difficult, and most organizations find the challenge overwhelming. Historically, working capital levels have been something procurement and operations have regularly fought over.
Procurement vs. Operations
Here's how the scenario plays out. A centralized corporate team tries to reduce working capital. Teams at the individual manufacturing sites are focused on not shutting down production lines. There is a natural tension between the two objectives. The end result typically is supplies and inventory rise and then the corporate inventory and finance teams have a natural response to reduce the working capital.
Other constraints impact excess inventory. For example, many companies are forced to cut inventory due to warehousing space issues, labor shortages or labor costs, and product shelf-life expiration.
Due to data inefficiencies, companies might hold onto product inventory for too long. As a result, they may reach their shelf-life expiration or succumb to built-in product obsolescence. These cuts will impact service levels.
Dealing with excess inventory
Global supply chains have been under pressure over the past two years due to economic slowdowns, including chronic high inflation, labor shortages, product shortages, and other global supply challenges. This is impacting how supply chain organizations presently operate.
While we can sometimes see temporary easing of supply chain pressures, energy and oil transportation continues to be impacted by circumstances related to the Russia-Ukraine war. These issues are also adding to supply chain woes.
Enterprises no longer have to reduce risk or reduce costs. Instead, manufacturers can invest in supply chain intelligence, software, and systems to minimize risk and maximize inventory in Maintenance, Repair and Operating (MRO) supplies. Now is the time to learn critical capabilities to maximize value and deliver a solid ROI.
New Ways to Solve New Problems
Is your company still manually manipulating data and optimizing inventory by using spreadsheets? Perhaps it’s time to rethink your processes and find modern approaches to fix new problems.
Traditional spreadsheet solutions do not work anymore. Having several screens on top of one another, with managers trying to aggregate data from one screen to the next, is time-consuming and ultimately wasteful.
Companies want purpose-built systems to implement new techniques and become strategically better placed in the supply chain. An AI-driven platform that sits on top of your existing systems and manages and organizes data across one platform is an emerging method for many Fortune 500 companies.
Supply Chain Optimization with AI
New AI tools can help accelerate the digital transformation of supply chains. For example, companies can compete more effectively with an AI-driven material management platform that pulls data from various systems and sources, harmonizes that data, and leverages that data into actionable decisions that save millions of dollars in inventory optimization.
Having all that data in the exact location helps bring decision-makers into an agreement. As a result, the platform becomes a trusted network layer that organizes the data to provide deep insights into MRO levels and the overall digitally integrated supply chain.
Getting a clear look at inventory levels across an enterprise can take 90 days or less. So there’s no need for lengthy digital transformation projects that never deliver any ROI.
Reduce Risk, Optimize MRO
The challenge for companies is to learn how to reduce risk and optimize MRO spare parts inventory for the next generation of materials intelligence across supply chain networks. This means understanding your customers’ and suppliers’ needs and wanting to reap benefits in unloading excess inventory.
What if your procurement teams could make better buying decisions without relying on excess inventory or risking production uptime?
Global manufacturers can use purpose-built technology for their MRO/spare parts strategies. Having better network visibility can help procurement to buy more strategically. In addition, your operations team will gain confidence that inventory levels are optimized for risk and won’t impact production uptime.
Today’s “plug ‘n play” technology solutions are purpose-built to evolve materials management. These solutions offer companies the ability to have a better balance between procurement and operations initiatives. Maybe it’s time to escape the old way of doing things and start using supply chain intelligence to transform supply and materials management.
Melissa Dietz is head of customer success at Verusen
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