Intro/Outro (00:01):
Welcome to TEKTOK Digital Supply Chain podcast, where we will help you eliminate the noise and focus on the information and inspiration that you need to transform your business, impact supply chain success, and enable you to replace risky inventory with valuable insights. Join your TEKTOK host, Karin Bursa, the 2020 Supply Chain Pro to Know of the Year. With more than 25 years of supply chain and technology expertise and the scars to prove it, Karin has the heart of a teacher and has helped nearly 1000 customers transform their businesses and tell their success stories. Join the conversation, share your insights and learn how to harness technology innovations to drive tangible business results. Buckle up. It’s time for TEKTOK, powered by Supply Chain Now.
Karin Bursa (01:04):
Well, welcome back, supply chain movers and shakers, Karin Bursa here, your host for the TEKTOK Digital Supply Chain podcast. You know, as the threat of an economic downturn looms on the horizon, it is time to discuss why now is the time to turn your chief financial officer, that’s right, your CFO into a supply chain cheerleader. You know, CFOs strongly believe that good supply chain performance is vital to achieving the financial growth plans for the business. However, most CFOs will view supply chain as a tremendous cost center or cost of doing business and a potential drain on overall profitability. Now, the truth is your CFO needs your help, supply chain, movers, and shakers. They need your insights and your expertise to navigate the current volatile environment, which is extremely challenging. And we’re getting financial pressures from three big areas right now, global supply chain volatility, and shortages. I know you know all about this. You are battling with this each and every day, and it looks like these shortages or greater volatility is going to continue for at least another 12 to 24 months.
Karin Bursa (02:28):
The second area is high inflation and it’s driving increases in non-labor costs. So, prices are going up everywhere. And the third is the scarcity and the increased expense of talent, along with a general lack of productivity during transitions, as we have record high employee turnover as a result of the great recession. So, those are three big factors that are influencing how your CFO is evaluating the overall financial performance of the business. Now, the lion’s shares of supply chain costs are tied up in working capital. It’s related to inventory investments, to physical warehouse and distribution centers, to plant and equipment and transportation. Let’s face it. Inventory is the most flexible of these options.
Karin Bursa (03:27):
That’s why the CFO is likely to look at cost savings through some inventory reductions. First, your task as supply chain movers and shakers is to help them identify where costs could be cut and where inventory investments are needed for revenue potential and expansion. It presents quite a challenge, quite a puzzle, that your expertise and your digital supply chain solution can help address. After all, adjusting inventory levels is something that should be done with precision, not with a hatchet. Too much inventory increases carrying costs. It requires excess capacity and it can lead to higher obsolescence, which means more inventory write-downs to little inventory, and that leads to out-of-stocks for customer service and increase costs resulting in lower margins as a result of expediting and short-term cost increases. So, understanding the tradeoffs and striking a better balance between inventory investments is where you and your team get engaged. Supply chain planning is going to help you predict demand more accurately and optimize inventory investments while supply chain execution solutions, such as warehouse management and transportation, planning and execution, are going to boost efficiency and visibility of the movement of goods.
Karin Bursa (05:13):
So, how can you help your CFO? Here’s a few ideas for you. The first comes to mind, and this is one I hear always from every C-suite member, we need more visibility. Now, you and I know disruptions happen every day and understanding the latest status of network operations is going to give you visibility, but don’t stop there in the short term. Remember that visibility has multiple horizons associated with it. Demand planning, for example, can offer a strategic view of your business that goes out two and three years into the future. It can also help you with a tactical view inside that 24-month window of time. And, of course, an operational visibility with techniques like demand sensing. Transportation is going to give you visibility of where inbound and outbound orders are and if that inventory is available to promise for new customer orders. Now, keep in mind the ability to leverage available to promise to see inventory in motion can help you reduce your overall safety stock policies.
Karin Bursa (06:29):
Okay. Second area, evaluate the supply chain plan in both volumetric and financial measures. This is really going to help your CFO. It will help the CFO align expectations around costs and revenue and any potential savings in the terms of actual financial and working capital investments. I’ll tell you that as you engage more and more with that senior management and executive level, the C-suite, and their unit of measure is dollars. And having the ability to translate your volumetric, how big, how much, what’s the quantity, plan into financial measures is really going to help them make decisions quickly and effectively.
Karin Bursa (07:23):
Now, the next area is to invest in automation. I know you’re thinking you just said reduce cost, but we’re making an investment here. This automation is really important because we need to free up plan or time where we can. We need to allow them to be working in some bigger impact areas, especially if we’re having problems hiring and recruiting in the organization. I want you to look at automation in areas like forecasting and replenishment order creation. These are two prime areas where you can get much more leverage and use exception-based management to get tighter and tighter around what you can automate or what you feel you need your planners to manually review. Invest in anything that’s going to give you more automation, more speed, more agility, and free up that valuable planner time. And if they’re working in spreadsheets, let’s fix that as quickly as possible.
Karin Bursa (08:28):
Now, the next area you’ve heard me talk about a couple of times, and that is the opportunity to reduce product portfolio complexity. Let me say that again, reduce product portfolio complexity. I got to tell you, I am really impressed with a number of companies that have done this through the pandemic. You might ask why. Well, if you get more efficient production runs and don’t fragment your efforts across areas that don’t offer volume options or margin options, the benefits of product rationalization are huge. Yeah, I’d tell you, they are huge. Simplicity is magic. And I know we’re all dealing with more and more complexity. So, if we can figure out a way to ratchet that back and introduce a little more simplicity, this is a good place to do it.
Karin Bursa (09:24):
So, look for those opportunities if you haven’t already done a product rationalization effort and get started now. As an added benefit, the ability to focus, demand on a narrower set of options or decreasing the number of production configurations, the number of changeovers, and the safety stock requirements associated with more skews can drastically improve your ability to optimize constraints and complexity. And that’s going to result in a more predictable and lower inventory and working capital requirement.
Karin Bursa (10:01):
Next, I want you to actually look at those inventory policies. Optimize your inventory policies and be sure that you are leveraging multiple safety stock policies. I can’t tell you how many companies I work with that when we start an engagement or a discussion, they’re using a single safety stock policy across their entire product portfolio. That’s right. Same policy for fast movers as they’re using for slow movers. Same policy for long lead time items as short lead time items. That just doesn’t work in today’s marketplace. You need the precision to apply safety socks that are tuned to that inventory form and function, those attributes, the margin contribution. Fast and slow movers require very different policies. Also, look at your seasonality factors. If you have a product portfolio that has high seasonality associated with it, let’s be sure we’ve got high safety stock requirements or service level requirements in peak season, but let’s go ahead and ratchet those back in the slower seasons.
Karin Bursa (11:17):
Okay. Next step is to optimize transportation practices and reduce costs. Now, whether you’re moving raw materials, components or finished goods across complex global network, it’s not an easy task. Savings here, or simply controlling the rate at which transportation costs have been rising is going to go straight to your bottom line and that’s going to make your CFO happy. So, remember that the CFO wants to actively manage cash the same way that we, as supply chain professionals, want to actively manage inventory. Longer lead times and more volatility have created some pockets of inventory that are in fact being hoarded away. If you are guilty, let’s get rid of those stockpiles and those hoards right now, and be sure that we’re offering transparency as well as a clear understanding of the tradeoffs and business drivers for the recommended inventory investments. Provide the visibility in the financial terms that the CFO truly understands and you are sure to gain a new sea level supply chain cheerleader.
Karin Bursa (12:37):
I got to tell you, movers and shakers, I remain confident that we as supply chain professionals are going to emerge from the pandemic stronger and with more resilient supply chains. If, and I underscore, if we are able to learn from these hard lessons and take appropriate actions now, and by the way, let’s expand our cheerleaders to include that CFO. I hope that these insights are going to raise your supply chain IQ.
Karin Bursa (13:07):
And, on the topic of raising your supply chain IQ, be sure to check out the wide variety of digital content at supplychainnow.com. While you’re there, please find TEKTOK, that’s T-E-K-T-O-K, and subscribe and tell a colleague or two to listen in as well. You don’t want to miss a single episode.
Karin Bursa (13:27):
This is Karin Bursa, host of TEKTOK, the Digital Supply Chain podcast, and I’m here to help you eliminate the noise and focus on the information and inspiration you need to transform your business to drive supply chain success and enable you to replace risky inventory with valuable insights. We’ll see you next time on TEKTOK.
