SAP, Oracle and Accenture weigh in on Inventory Reduction
Before you read this article you may want to check it out as it appears in our March Issue of Supply Chain Digital. It's way cooler being able to flip through our user-friendly e-reader.
Inventory management, as defined by our friends at Wikipedia, is “required at different locations within a facility or within multiple locations of a supply chain network to protect the regular and planned course of production against the random disturbance of running out of materials or goods.” Inventory management is a double-edged sword because supply chain managers must strike the perfect balance between surplus and shortage. Too much inventory often means that a company has tied up a good chunk of capital in a product that might not move off the floor as fast as others. It’s a problem because that surplus is essentially lost cash (until the inventory is moved) that could be spent on other revenue-growing activities. This problem is widespread as a recent SAP survey found that a fourth of all manufacturers carry at least 25 percent more inventory than they have to. Although that inventory usually finds a place to go at some point, it’s still wasted cash in the short-term. Conversely, when a company suffers a shortage of inventory, it pinches suppliers and upsets customers. It can be a disaster for all parties involved in the multi-layered supply chain. Additionally, shortages can mean that suppliers and customers will be reluctant to play ball with a company that fails to accurately manage its inventory levels and forecasting process.
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That’s why the top companies in the world turn to solutions and consulting services from SAP, Oracle and Accenture to help bring inventory down to a manageable and sustainable level. While the initial costs can be intimidating, the end result is a much more efficient operation, a better cash flow and increased service levels across the supply chain. SAP, Oracle and Accenture are three of the biggest players in inventory management and Supply Chain Digital thought it was a perfect time to see what they’ve been up to.
Industry: Computer Software
Founded: 1972, Germany
CEOs: Bill McDermott (Co-CEO), Jim Hagerman Snabe (Co-CEO)
Employees: 53,513 in over 50 countries
Revenue: €112.464 billion (2010)
Inventory Management: “Determining detailed optimal and visible inventory targets across the supply chain that drive successful planning and replenishment in an ongoing manner for every item at every location across time, resulting in lower aggregate working capital with equal or better customer service and lower supply chain cost.” –SAP
Solution for Inventory Optimization: In its value proposition, SAP introduces SmartOps, an integrated end-to-end planning and execution platform that helps SAP manage $40 billion in client inventory. SmartOps helps clients see a 5-10 percent increase in order fill rates and on-time delivery, a 20-30 percent reduction in average order lead time and a 50-75 percent reduction order lead time variability.
Industry: Computer database; Computer software
Founded: 1977, USA
CEO: Larry Ellison
Revenue: $26.82 billion (2010)
Inventory Management: “Retailers today have thousands of items in hundreds of stores, provided by countless suppliers, and distributed through dozens of warehouses via thousands of purchase orders. Each item has its own unique demand pattern for each location, cost, vendor lead-time, pack configuration, transportation cost, and more. It is important to accurately manage these numerous variables to achieve inventory.” –Oracle
Oracle Retail Replenishment Optimization: “Oracle Retail Replenishment Optimization provides an automated, exception-driven approach to achieving optimized inventory, removing the overwhelming requirement to manually set and monitor inventory targets and customer service levels by store and SKU. Instead, it focuses the user on key performance measures and automatically monitors SKU/location demand and supply chain variables to determine and continue to fine-tune optimal inventory for greatest return on this capital investment.” –Oracle
Industry: Management consulting; Technology services; Outsourcing
Founded: 1953, USA (as Anderson Consulting)
CEO: Pierre Nanterme
Employees: 214,000 in over 120 countries
Revenue: $23.094 billion (2010)
Inventory Management: “A surprising number of companies continue to use the most basic of inventory policies—that is maintaining the same level of inventory across all stock-keeping units (SKUs)). Naturally, this leads to stock outs for faster moving items and overstock for slow moving items, compromising customer satisfaction and tying up working capital.” –Accenture
Consulting at its Finest: “An optimization study includes the setting of targets for a broader set of SKUs, as well as the identification of process improvements that can have an impact on stock levels, such as inventory hoarding, demand forecasting and supply reliability. The focus here is on identifying quick wins to remove working capital from the balance sheet and free up cash.” –Accenture
Biden establishes Supply Chain Disruptions Task Force
The US government is to establish a new body with the express purpose of addressing imbalances and other supply chain concerns highlighted in a review of the sector, ordered by President Joe Biden shortly after his inauguration.
The Supply Chain Disruptions Task Force will “focus on areas where a mismatch between supply and demand has been evident,” the White House said. The division will be headed up by the Secretaries of Commerce, Transportation, and Agriculture, and will focus on housing construction, transportation, agriculture and food, and semiconductors - a drastic shortage of which has hit some of the US economy’s biggest industries in consumer technology and vehicle manufacturing.
“The Task Force will bring the full capacity of the federal government to address near-term supply/demand mismatches. It will convene stakeholders to diagnose problems and surface solutions - large and small, public or private - that could help alleviate bottlenecks and supply constraints,” the White House said.
In late February, President Biden ordered a 100 day review of the supply chain across the key areas of medicine, raw materials and agriculture, the findings of which were released this week. While the COVID-19 health crisis had a deleterious effect on the nation’s supply chain, the published assessment of findings says the root cause runs much deeper. The review concludes that “decades of underinvestment”, alongside public policy choices that favour quarterly results and short-term solutions, have left the system “fragile”.
In response, the administration aims to address four key issues head on, strengthening its position in health and medicine, sustainable and alternative energy, critical mineral mining and processing, and computer chips.
Support domestic production of critical medicines
- A syndicate of public and private entities will jointly work towards manufacturing and onshoring of essential medical suppliers, beginning with a list of 50-100 “critical drugs” defined by the Food and Drug Administration.
- The consortium will be led by the Department of Health and Human Services, which will commit an initial $60m towards the development of a “novel platform technologies to increase domestic manufacturing capacity for API”.
- The aim is to increase domestic production and reduce the reliance upon global supply chains, particularly with regards to medications in short supply.
Secure an end-to-end domestic supply chain for advanced batteries
- The Department of Energy will publish a ‘National Blueprint for Lithium Batteries’, beginning a 10 year plan to "develop a domestic lithium battery supply chain that combats the climate crisis by creating good-paying clean energy jobs across America”.
- The effort will leverage billions in funding “to finance key strategic areas of development and fill deficits in the domestic supply chain capacity”.
Invest in sustainable domestic and international production and processing of critical minerals
- An interdepartmental group will be established by the Department of Interior to identify sites where critical minerals can be produced and processed within US borders. It will collaborate with businesses, states, tribal nations and stockholders to “expand sustainable, responsible critical minerals production and processing in the United States”.
- The group will also identify where regulations may need to be updated to ensure new mining and processing “meets strong standards”.
Partner with industry, allies, and partners to address semiconductor shortages
- The Department of Commerce will increase its partnership with industry to support further investment in R&D and production of semiconductor chips. The White House says its aim will be to “facilitate information flow between semiconductor producers and suppliers and end-users”, improving transparency and data sharing.
- Enhanced relationships with foreign allies, including Japan and South Korea will also be strengthened with the express proposed of increasing chip output, promoting further investment in the sector and “to promote fair semiconductor chip allocations”.