Inventory management continues to evolve. Like many other processes, the evolution is driven by the increasing demand for competitive efficiency. Too many companies today are driving blind due to a significant disconnect between the shop floor and the C-suite, which is negatively impacting not only their bottom line, but also their competitive edge. Today’s increasingly competitive, fast-paced and global market demands that companies have a 360-degree view into all aspect of operations and production in order to drive new efficiencies throughout the supply chain, as well as down the assembly line and onto the floor. A comprehensive Inventory Management solution delivers critical business insight.
The Evolution of Inventory Management
From the dark ages of manually counting physical inventories, to bar code technology and RFID chips, manufacturing has come a long way. But each of these technological changes have created more and more data and complexity. Enterprise Resource Planning (ERP) software was touted as a game-changer in the 1990s. It built on the capabilities of materials requirements planning and manufacturing resource planning to integrate the management of core business processes — often in real-time. This increased visibility across departments did not come without a price though: ERP software can be extremely complex and quite costly to deploy from implementation to training and maintenance. The enormous human and financial resources required to implement these systems were justified by the promise of increased utility and efficiency. However, after implementing a fully functioning solution, actualizing those benefits still proved to be a challenge and many were left wondering: Did they truly automate workflows?
The cloud has been hailed as the answer everyone has been waiting for to help ERP software deliver on its many promises. In fact, there is a strong appetite for cloud ERP with 47 percent of organizations surveyed by Gartner planning to move their core ERP systems to the cloud by 2019. It is true that the cloud will solve many of the issues that have plagued companies trying to leverage ERP software. The cloud will connect a few dots and transition ERP from a single fixed capital expense to an operating expense divided across time, which will reduce overhead, making it more affordable and accessible for manufacturers of all sizes. It will also make real-time access to information across multiple departments and locations possible, which has been the long been ERP’s Achilles’ heel, but even the great and mighty cloud can’t fix everything.
While ERP software has certainly helped automate business processes, cut costs and identify new opportunities for greater efficiency, it still falls short when it comes to understanding the complexities of the shop floor and fragmented business practices. ERP software tracks the movement of direct materials — like hefty sheets of metal that, to put it plainly, are not all that challenging to manage — and disregards the enormous variety and quantity of indirect materials and tools that are equally important to production efficiency. Furthermore, they rely on purchase data while ignoring actual usage and consumption data. Yes, knowing what was purchased and when are important, but so is how it was used, by whom, and for how long (among other things) because those details also impact the bottom line.
In recent years, manufacturing facilities have turned to Manufacturing Execution Systems (MES) to increase operational visibility on the shop floor, support real-time process control scenarios and quality initiatives. Combining ERP with MES certainly helps complete the thread throughout the organization and the supply chain. This is a great approach for tracking the use of direct material and the production of finished goods, but the thread connecting the various departments with the supply chain is still far too fragile and fails to take into account indirect materials and tools. As a result, companies are forging ahead without an understanding of how direct and indirect materials, and tools are used, which translates to inefficiencies, lower productivity and less of a competitive edge.
Comprehensive Inventory Management – A Complete Picture
Indirect materials and tools have long been overlooked and perhaps even taken for granted, but the costs associated with them are very real. The wholesale distribution industry in the U.S. is projected to exceed $5.3-trillion in 2018. Add to that the direct purchases made by manufacturers and you are looking at upwards of $8 trillion. Effectively managing and reporting on indirect materials and tools, including consumption and lifespan data, is central to the manufacturing process because the whole operation grinds to a halt without indirect materials and immediate access to tools. Not to mention the costs associated with shutting down production or being out of compliance and increasing your liability when critical inventory is out of stock.
A comprehensive Inventory Management solution complements ERP and MES, picking up where each leaves off to complete the Business Intelligence picture. It enriches the information available to companies and provides the in-depth intelligence and insight companies have been seeking. Furthermore, real-time reconciliation of information between ERP and a comprehensive Inventory Management solution ensures data integrity for supporting accurate scheduling, planning, monitoring, resourcing and costing. Finally, performance efficiencies gained from comprehensive Inventory Management will lead to increased profitability and decreased waste; eliminating downtime, optimizing processes and automating workflows.
Accurate Business Intelligence and insights have climbed to the top of the corporate agenda. They are critical to success in today’s increasingly competitive and global marketplace. Emerging technologies, like the Industrial Internet of Things, Big Data Analytics, Machine Learning, and intelligent Inventory Management solutions are making the previously impossible to know details not only possible, but accessible in real-time. As Industry 4.0 matures, the top floor will expect more insight into the shop floor because they know it is possible and they understand that those insights will impact broader business decisions. Insight into the shop floor promises to transform the way companies do business, delivering the kind of performance gains last seen in the 1990s, when organizations redesigned their core processes. And as data-driven strategies take hold, they will become an increasingly important point of competitive differentiation. Now is the time to deploy a comprehensive Inventory Management solution that integrates with ERP to ensure the C-suite has the Business Intelligence and insights needed to make decisions that will see the company through the next Industrial Evolution — keeping your business from going extinct.
Floyd Miller is CEO of SupplyPro.