Customer Satisfaction Vs Inventory
In today’s manufacturing environment there’s a fine line between meeting customer demand and having too much inventory. The voice of the customer will typically dictate which path you follow. Constant customer complaints will spur management to demand we “do whatever it takes to satisfy the customer.” After a surge of actions by the Procurement and Planning teams, this will result in seeing improved fill rates, but often closely followed with inflated inventory, over hiring of resources, and large amounts of overtime. Planners and buyers become weary of being out of stock and will go to the opposite extremes to correct this problem; increase stock on everything is the mantra! The problem with this way of thinking is that we never solved the problem, we just created another one to take its place.
Solving this mystery involves answering two primary questions. The first is, are we selling product at a faster rate than we planned? The second is, are our suppliers, external or internal, hitting their planned leadtimes? If we can determine which of these are the root cause, we can develop the right solution. Identifying where customer orders outpace the sales plan allows us to be proactive rather than reactive. Contacting them to determine if this is a temporary increase or if it will be sustained shows them that we recognize their increased business. It also opens communications up that will allow us to change our internal plan to support sustained business or ignore a one-time spike.
When we find that demand is consistent with our plan, we can look to leadtime performance by our Suppliers. Diagnosing which items we consistently miss outside of leadtime will identify the items which need additional time accounted for in the system to keep us from running out. Adjustments need to be internal increases which will allow us to hold the Suppliers accountable to their delivery windows. This can be accomplished by adjusting the internal order creation time or goods receipt time (also known as Pre and Post-Processing times). This change allows the company to protect their customers by triggering replenishment earlier, but not change the requirement window for the vendor. The outcome can result in increased inventory, provided the vendor meets the stated leadtime. To understand this impact, we should determine the cost associated with having to account for additional time to make or procure. If this value is substantial, we should negotiate with the supplier to offset this additional cost or work to meet their stated leadtimes.
Finding the balance between customer satisfaction and excessive inventory is an ongoing saga. Experience says you never stay balanced for very long. Having the ability to understand the drivers will allow you to correct the imbalance without risk of overall inventory gain. The suppliers form a partnership with the consumer. The goal is to plan to demonstrated abilities but have a contingency plan to allow quick adjustments to parameters to reduce risk.