Consumer Products companies (and others) face pressure to reduce costs, have customers demanding better availability, and have an ever-expanding global supply chain. In this environment, managing inventory is difficult. However, by optimizing inventory by determining the best buffers, the location of the push/pull boundaries, and the correct amount of inventory and safety stock at each location for each SKU.
To address these needs, IBM has pulled together a solution to help firms optimize inventory on an on-going basis. This solution pulls together IBM's optimization technology (IBM ILOG Inventory and Product Flow Analyst), our expertise in inventory optimization, our expertise in integration to ERP systems, and other capabilities such as SPSS's predictive analytics. Click here for a paper on this solution.
The benefits of inventory optimization can be significant:
Studies suggest that reducing inventory can increase share price.
Deciding where to locate your manufacturing plants or where to make a product can have significant impact on your overall cost and your ability to serve your customers. However, this is not a trivial decision and depends on many factors.
Over the last several years, the press has reported on the move of manufacturing from the US to China. However, two recent in articles in The Wall Street Journal and Bloomberg Businessweek, show that the issue is much more complex.
Both articles point out that rising wages in China erode the labor cost advantage. And, the rising cost of commodities and especially oil, tip the scales even further. Both articles indicate that there will be a speed up in new manufacturing capacity being built in the U.S.
Certainly, moving production to China was not the answer for many firms. The Wall Street Journal article points out that rising productivity has allowed US manufacturing output to actually double from four decades ago. And, many firms chose to keep manufacturing in the U.S. to protect intellectual property, to be closer to the market, or to minimize inventory investments.
At the same time, over just the last five to ten years, we have seen firms build manufacturing capacity in China for the China market. So, as consumer demand increases in China, more manufacturing capacity is needed to service these markets. This new demand must be accounted for in decisions on where to locate manufacturing capacity.
Deciding where to locate manufacturing capacity becomes even tougher when you factor in the impact of taxes, inventory, and risk.
So, how should you determine where to locate your manufacturing capacity? The answer is not simple, but should consider the following:
An analytical tool to consider all the cost impacts (labor, transportation, raw materials), tax implications, inventory implications, and service levels.
A analysis of the amount of flexibility. Some questions include: Should plants make all products and service their local markets? Should plants be more focused to increase productivity? How much flexibility should we have?
A risk analysis. How much risk are you willing to tolerate? What is the cost if something happens to one of your facilities? What is the cost of building redundancy in the supply chain and is it worth it?
Product analysis to determine what to make where. Even within a fixed network of plants, you have choices in what should be made where. By doing this correctly, you can significantly improve your performance.
This type of analysis is not a one-time event. You have a chance to mold your strategy everytime you make a capital investment in your supply chain. And, the more facilities you have, the more opportunities you have to adjust your supply chain when market conditions change.
IBM's ILOG and Sterling supply chain teams have been named to the Top 100 Logistics IT Providers for 2011 by Inbound Logistics.
This echos the comment from last year from SupplyChainDigest that" Somewhat quietly, IBM is building a formidable portfolio of supply chain software solutions that has the potential to shake up the existing market."