Inventory Management Remains the Weakest Link in the Supply Chain
CCMI outlines strategy for reducing inventory and unlocking the door to
increased cash flow for manufacturers and retailers
ALEXANDRIA, Va. (February 25, 2002) - According to Capital Consulting &
Management Inc. (CCMI), a supply chain-focused consulting firm, efforts to
reduce inventory levels maintained by U.S. manufacturers and retailers are
not keeping pace with the significant advances being made in other supply
chain-related activities. CCMI believes that while inventory management is
the weakest link in the supply chain today, applying new strategies can
yield significant improvements in inventory levels and costs.
"Through the adoption of technology, increased information was supposed to
replace physical inventory in 21st century supply chains, but it`s not
happening as quickly as anticipated," said Scott Elliff, president of CCMI.
"By all measures - quantity of information flow, speed of data transmission
and sophistication of technology tools - the availability of information is
continuing to grow exponentially. At the same time, overall business
inventories of raw materials, work-in-process and finished goods as a share
of the Gross Domestic Product are virtually the same as they were five years
ago, and are now at an all time high level of about $1.5 trillion."
Reducing inventory frees up capital for better uses, such as reinvestment in
new plants and equipment, marketing and sales initiatives to grow market
share and increased dividend payouts to shareholders. For a company with
one billion dollars in sales, reducing inventory from "average" levels to
those achieved by leaders within that company`s industry can generate
anywhere from $20 million to $100 million in added annual cash flow.
To achieve these benefits, CCMI recommends that companies rebalance the
roles of information systems and operational improvement programs.
"Technology is a terrific enabler for providing better visibility of
inventories and efficiently performing complex inventory optimization and
replenishment calculations, but it`s the people within the companies who
need to set the business policies and procedures, make the day-to-day
decisions about what to order, make, stock and ship, and diligently address
ongoing problems," said Elliff.
By far the best results are achieved when new technology is coupled with
focused strategies to improve underlying business processes, which typically
include five key program elements:
* Updating lead times and order quantities to reflect improvements in
transit times and delivery reliability
* Analyzing and sharing data on production and sales levels with
suppliers and customers, so that more timely adjustments can be made to
future forecasts
* Building additional flexibility into manufacturing processes,
through just-in-time programs, last-minute customization capabilities, and
fast lane make-to-order replenishment methods, especially for volatile
seasonal merchandise
* Redesigning warehouse networks, layouts and procedures to speed up
the flow of goods from suppliers to customers
* Aggressively disposing of obsolete or "dead" inventory that clogs
the supply chain
"Companies that are coupling these supply chain process improvements with
the latest in real-time supply chain information technology are achieving
the most dramatic improvements in costs and service levels, and are making
inventory management a much stronger link in their supply chains," said
Elliff.
About Capital Consulting & Management Inc. (CCMI)
CCMI has more than 16 years experience developing and implementing supply
chain process improvements that truly "move the needle" for clients by
reducing costs, shortening cycle times, improving performance on key
financial measures and strengthening strategy and capabilities. Overall,
CCMI has helped clients save more than $2 billion in annual operating costs
and inventories, with typical reductions of 15 percent or more in
procurement, manufacturing, transportation, logistics, order fulfillment and
related areas. CCMI has had a leading role on projects for a diverse set of
clients, including Amgen, Amtrak, AT&T, General Electric, Kmart, Lucent
Technologies, NexPress Solutions, Sara Lee, SkyJet and Zenith Electronics.
For further information visit www.ccmiservices.com
.
Brian Burch
Ruder Finn | Chicago
p 312 329 3915
f 312 932 0367
e burchb@ruderfinn.com
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