When the bottom fell out of the economy in 2008 and 2009, thousands of businesses found themselves stocked up with more goods than they could sell—which often as not led to a shortage of working capital needed to keep the enterprise running smoothly. That experience left many determined to tighten up their inventory management so they would never get caught like that again.
But keeping tabs on inventory has proved to be a tricky thing to do, given the proliferation of SKUs in many industries as well as increasingly global supply chains and the long lead times that come with them. Another complication is that at any given moment, those goods may be spread out among trading partners—suppliers, carriers, and the like—all over the world.
In many cases, that's prompted managers to turn to software tools that give them visibility of inventory across multiple facilities, third parties, carriers, and suppliers. That visibility, they're finding, can provide the information and confidence required to reduce inventory levels throughout the supply chain.
No more black holes?
Tom Kozenski, a vice president at RedPrairie, a developer of warehouse management and other software systems, says his company has been focusing on the visibility capabilities of its products for about a decade in response to requests from customers—particularly those in the consumer packaged goods and food and beverage industries. The development of what he calls a "glass pipeline" enables customers to see inventory at a level of detail that extends down to the license plate on a pallet.
In fact, some shippers have become so accustomed to having that kind of visibility that they're no longer willing to tolerate the occasional "black hole," where inventory information is temporarily unavailable. "What has happened more recently is that customers have asked for support to [find ways to look inside] the black holes ... in their networks," Kozenski reports. That might include, for example, third-party facilities that may not have systems to provide data automatically. "They have asked us to provide additional integration services to get information out of a third-party network."
Not all third-party logistics service providers (3PLs) are informational "black holes," of course. There are plenty of tech-savvy players that use visibility tools themselves. For example, some 3PLs are using the software to track inventory across multiple facilities as well as to provide that information to customers.
Steve Simmerman of Next View Software, a company that offers a suite of supply chain management tools, describes a California-based 3PL customer that is using Next View's software at three of the facilities on its five-building campus. "They are using it to manage multiple locations and will add a Chicago facility," he says. "They are able to see their inventory in real time and to create KPIs [key performance indicators] and metrics based on their needs. So for example, they can build in events and alerts based on inventory levels. The other thing they are doing, because the [software] is Web-based, is opening it to their customers so they can look at their inventory levels." As a result, he says, the 3PL and its customers can actively manage inventory based on the customers' business rules.
Monitoring rolling stock
Visibility also continues to improve for goods in transit, as carriers and software providers introduce tools that offer detailed views of what's in the truck or container. Chris Timmer, senior vice president of business development and marketing for LeanLogistics, a provider of Web-based transportation management software, reports that a number of his company's clients "are working to develop technologies that provide visibility between the transportation nodes and their facilities."
He cites the grocery chain Meijer, Ace Hardware, and consumer packaged goods giant Unilever as examples of companies that are managing their inbound transportation to plants and DCs and connecting that to their inventory management. "They are getting visibility and the assurance that goods will be there when they're supposed to be there," he says. "That allows inventory to be reduced."
In Ace Hardware's case, the result has been double-digit inventory reductions. Before it began using a transportation management system (TMS), the company was forced to use the longest possible lead times in planning to avoid out of stocks, according to a case study posted on LeanLogistics' Web site. It also had limited visibility into supplier performance against requirements. That all changed once it began using the TMS, Timmer reports. "Ace gained better visibility into the status of orders and shipments, which improved lead time performance and predictability, and allowed it to tighten safety stock," he says. The company was able to reduce inventory by 15 percent and increase turns by 25 percent even as sales grew by 6 percent, according to the case study.
Tracking shape shifters
Although tracking goods through a supply chain may never be easy, it becomes particularly challenging when the products are undergoing changes along the way. Kozenski of RedPrairie offers the example of a shipper that sends pallets of goods to a co-packer to prepare store-ready displays. When those goods are depalletized and mixed on the displays, it can be difficult to connect the dots between what was shipped initially and the items on the displays. "The goods have to be re-identified at the receiving DC, and that slows them down," Kozenski says.
To address that problem, developers like RedPrairie now offer Web-based tools that enable the two parties' systems to exchange inventory data in sufficient detail to track those goods. "If a product is not transformed into a different selling unit, we can track it with the license plate number that goes with the pallet. If they break it down and build something like a kit or a store-ready pallet, our system supports a multi-level bill of material," Kozenski explains. "With a new finished good, we can trace it down to its component parts."
Kozenski says that sort of detail has become increasingly important as companies in industries like pharmaceuticals, food and beverage, and toys have had to deal with recalls. The ability to find the precise goods targeted by a recall is crucial, he says.
Triple play
As for what kind of returns shippers can expect from an investment in visibility tools, Kozenski says the payback comes in three areas. Most obvious is the ability to reduce inventory systemwide, he says. "You have one version of the truth. You know what you have and where it is, so you can eliminate safety stock and inventory buffers."
Less obvious, but still significant, is that improved visibility translates into labor savings. "The fact that you can eliminate re-identifying inventory saves warehouse labor," Kozenski says. "We have done studies that show ASN (advance shipping notice) receiving versus manual receiving results in an uptick of about 30 percent [in productivity]. You manage exceptions only, and throughput of the facility is maximized." (Timmer, however, argues that greater gains can be achieved if a DC has visibility further back, to when a good is ready to ship. "If you want to plan, you have to know when the goods are ready," he says.)
A third benefit, Kozenski says, goes back to the ability to better manage recalls. That is, by allowing shippers to know where the targeted goods are located, visibility provides a means of protecting one of the shipper's most important assets, its brand.
Gartner, Inc.
