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�� ChainLink Research Copyright 2012 All Rights Reserve Conquering the Inventory Dilemma By Ann Grackin ChainLink Research �� ChainLink Research Copyright 2012 All Rights Reserve About ChainLink ResearchChainLink Research, Inc. is a Supply Chain research organization dedicated to helping executives improve business performance and competitiveness through an understanding of realworld implications, obstacles and results for supplychain policies, practices, processes, and technologies. The ChainLink 3Pe Model is the basis for our research; a unique, multidimensional framework for managing and improving the links between supply chain partners.For more information, contact ChainLink Research at:719 Washington Street, Suite 144, Newton, MA 02458.Tel: (617) 7624040. Email: info@clresearch.com Website: www.clresearch.com �� ChainLink Research Copyright 2012 All Rights Reserve ContentsIntroductionThe Inventory DilemmaPart OneBusiness Model and Product and Supply Chain StructuresProduct and Inventory StrategiesSupply Chain Structure and AgreementsAlignment with Organizational GoalsRisk Management and VolatilityThe Data ExplosionsVolume, Dimensionality and Visibility ChallengesThe Inventory Solution: Getting Beyond the DilemmaPart TwoWinning the Inventory Game in Volatile Markets: IPICOPlaying to Win: Upper PlaygroundThe Inventory Solution: What’s it Take? Part ThreeA Case for CloudConclusionConquering the Dilemma �� ChainLink Research Copyright 2012 All Rights Reserve THIS PAGE IS INTENTIONALLY BLANK �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Introductionrom an accounting perspective, inventoryis considered an assetThequestion ishow do you have enough to satisfy your customers while not having so much that ayour working capital is tied upYou can imagine being able to satisfy 100% of your customers 100% of the time with 100% of the offered inventoryyou can imagine it, but not even the largest companies canafford it. You can also imagine the alternativthe Henry Ford model of inventory management: you can have itany color or sizeyou’d likelong as it’s blackworked for Henry Fordbut you won’t be able to stayin business very long when your customers have many optionsavailablefrom your competitors. At the same time, many businesses have embraced lean approaches, striving to minimize inventory at every stage of their operation. “Inventory only really matterswhen it’sconverted into salesInventoryis the productafter alland how we make money. or most businesses, managingthe inventoryis also burdensomeactivity.It seems that in the management of inventorywe are always left with unsatisfactory choicesou could trya buildorder strategybut be saddled with long lead times and indeterminatedelivery times(andprobably a highercost product).Withtheorder by 10 phave it by 10 a.m. availability model embraced byso many industriestoday(whether a completecustom buildorder or a website with movie and music downloadsMost businessspend too much time dealing with inventory challengesFormanythe cost of excess is manageableIt’s part of the cost of doing businesshey are willing to absorb, withinreason, the cost of holding ample inventoriesto make sure they are always responsive to sales opportunities“Thershould always be plentof our productson the shelffor our customers to buy, because we never want our customer to have aason to choose our competitors), having a clearprecise picture of your optionsis critical to success. Although consignment inventory is considered a liabilityThe “stack it high, watch it fly” mantra may work for many retailers, but only if they have theright mix, which can be very challengingHigh techcompanies, which are ofen thought of the paradigm Yes, they too have inventory issues.Surprisingly, told to us by a hightech VP in an industry usually known for lean supply chains Dilemma: A situation with unsatisfactory choices in which somebody must choose one of two or more unsatisfactory alternatives; in logic, a form of reasoning that, though valid, leads to two undesirable alternatives Solution: Finding the answer to a puzzle or question; a method of successfully dealing with a problem or difficulty �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 of the buildorder methodare plagued by long lead time components, temptingthemkeep more inventory than their current demand requires.Inventory management challenges are dynamic.The cost of managementchanging transportationmethodswarehouse and administrativemanagement, ramatic fluctuations in fuel costs, rapidly rising or falling wages in different regions,andchanges in market conditionsi.e.demandorcustomers’strategiesall impact inventory strategy. lus the opportunitycostof havingcash tiedup in‘justcase’inventory can limit responsiveness if markets change. dynamics makeachieving the right inventorystrategy a moving targetBut having excessis a huge burdenrequiring markdowns, margin loand oftennew product cannibalizationor liquidationof the excessinventorySo, there is no one rightlevel of inventoryit depends on yourgoal and the nature of your business, marketor product line.In spite of the scienceand artthat has been developed over years of best practicesand technologymany challenges still persist. Latelythese challenges have been exacerbatedby a volatile global economy. This volatility leads many companies to realize that even if they had stable methods in the past, they now need to address their approachand respond to new conditions.This issue emphasizethe point that having great technology, great processesand great people who know how to operate in this dynamic environment is required.In this white paper we will discuss the challenges and strategies for solving the inventory dilemma:Challenges and tradeoffs in managing inventoryin a dynamic and volatile worldCase studieshow large and small companies have learned to manage and use inventory as a strategic advantage to increase sales and customer satisfaction, and yet maintain profit margins and decrease the working capital tiedup in inventoryAnd how the proper use of technology provides visibility, cohesion and precision your inventorymanagement decisionsConclusions and lessonslearned from successful practitioners. High tech suffers from high volatility due to global risk issues causing material shortages, as well as intense competition. �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 The nventory ilemmaPart OneBest practices, bepracticesyou’ve hearit, you’ve taken the courses, seminarsand written all the sequels, yourself. So why does inventorymanagement continueto be a challengeMaybe it’s not you, but the volatile world, the changing customersand the economic conditions of the supply chain. The respondents incompanies we interviewed for this report have their hearand soul in designing great products and serving and delighting customersnot in methodologiesBut whatever yourmotivationu still need a game plan to win in this volatile world.Oftenoverly simplistic discussionof inventory management state that because youare in a specific industryretail or high tech, for exampleour inventory strategyshould be ‘XBut those who work dayday know that their business may be quite different and have different goals and characteristics than other firms within the same industry sector. Rather than taking a strictly industrybased approach, firmsshouldlook at their own business modeland strategy, supply chain structure, the nature of their products, and other characteristics of their business. By taking these factors into considerationthey can improvetheirinventory strategy by changing contracts with customers or suppliers, improving their demand or supply chainstrategyand most importantly, byimproving their access to informationwill explore(using Figure 1) some of the challenges or areas of dynamism in businessthat createinventory management challengesBusinesModel and Product and Supply hain StrucuresA lot of creativity can go into creating businessmodels todaywhether foresignonlybrand companies orvertically integrated businessthatstill design, makeand sell their own productsherecan be alarge varietyofbusiness models in the ‘product creator’ segment. Althougha firm may be categorizedin themanufacturingsector, we know they may not ‘touch’ or even own a plant. Some or all of the businesscan be outsourcedthird parties. And the socalled third parties (e.g. contract manufacturers, istributors, ogistics, packaging) have become creative andincreasingly successful in expanding their business through entering new industries,orcreating new services such as light manufacturing, installationand serviceSomehavecreatedfinancial agreementto share the inventory risk withthe manufacturer they represent or the customers they serveThe last few years have brought huge challenges to companies due to globalization and economic volatility. is has caused all companies to reconsider and often make dramatic changes in howthey manage their business modelrevenue, partners and business structure. Assumptionsabout past planning methods insales forecasting andinventory planning, therefore, might not be valid in the current economic conditions.So, a firms approach to inventory management has tobe fresh and should be reassessedconstantly as part of the business activities. Often, a wholesale distributoris not a public company and can assume cyclical financial burdens to support inventory for the supply chain. Of course, there has to be solid analytics behind such agreements. �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Product and Inventory StrategiesAlthoughdurableand nondurableare old phaseand not often used today to describe productsthey do serve as a base forthinkingabout inventory strategy.One mistakeoften made in consumer segments is characterizing productas fastmoving. For instance, in restock/replenish itemsfrom soup to soapthe dataand the productarenot very fast at all, with many firms updating forecasts at monthlyintervals or longerthe extreme, ighly perishable food goodsare fast movingwhereas oapscan be stored in the warehouse for year. Higtech consumer electronics(which are not called fast moving), on the other handhave afastmoving product life cycle, fast manufacturing, dynamiccompetitionand thereforeconstantly changing forecasts. So dispelling mythsand avoiding generalizationshelps in inventory planning.Fast fashionalso has someoldmyths. The old thinkingconsidered fashiona onetime buypparel enterthe retail channel and was sold (or not) and new products seasonally replacethe. But today, with higher visibility and nearterm forecasting, multiple replenishment cycles for the same SKUcanhappen in a matter of days for firms thatuse this approachService businesses often have majorchallenges forecasting the inventory required in both the shortand long term to meet service demand. Committed turnaround times for many markets can be in hours (auto parts, for example) requiring a high inventorycost to be a player in this market. These are just a few examples differentcharacteristicsthat create inventory planning dilemmas. Supply Chain Structureand Agreements One of the most important aspects of business is finding andcollaborating with trading partners who add value to the business. These relationshipsare honed, often after many years of experimentationolices and agreements between trading partners have a huge impact on inventory management. For example, is a retailer really taking possession of the inventory, or is it considered consigned, thus creating returns on the unsold items, in which case the supplier is still left with the inventory dilemma.Agreements also can focus onpricingcontrol and product promotionswhich have animpacton sales and margins. Some retail sectors take full responsibility for the products they sell; others will control price, but the manufacturerretainsthe inventory burdenandhato deal with unsold merchandiThis impacts revenue recognition, as well as working capital. Companies may find themselves in a cash and inventory crunchcustomersreturn unsold product. As well as having to initiate a liquidation process, increasing management expense, reducing product margins and potentially cannibalizing new product offeringsStronger brands, though, can still dictate their own terms. “Our best strategy was having a picture of current events. That mattered more than product categorization.” �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Lack of visibility in channel partnerssales also creates challenges in making the right decisions for current inventory, replenshmentand strategiesfor the next round of products. Vendor anagedInventory (VMI)orconsignment inventory practicesare often not reevaluated foryears. For some standard products this approachmightworkbut in more demandsensitiveor buildorder markets, more creativecollaborative planningand replenishmentagreements between trading partners may be required. Supplier agreementson planning cycles, lead timesand inventory ownership are also important here. or some customers, theis no liability for poor forecastswhereasothers need toand often docommit to purchase levels within a certain time frame in order to receive preferential treatment, discountsetc. These agreementsdemonstrate the dilemmaquite wellack of purchasing commitmentin the relationships means less working capital tied up in inventory, but may meanlongerlead times and higher prices on supply. Converselycommitments might tie up working capital but may meana more responsive supply chain over timeAgreements and polices with trading partners are most often overlooked, but have a huge impact on inventory management and must be considered in any inventory strategyAgreementsneed to be visible crossfunctionaly,sincehey not only impact the cost of goods sold, but current and future sales andsupplier strategies. Alignment with rganizationoalsLack of alignmentin businessprocesses and information leadsto ineffective inventory strategy and decision making. Here are a few examples:Cash Managementand Budgetingf course, business’sgoal isto grow profitablyBut cash is also king. Cash allows companies more flexibility in making the right decisions to support critical operational decisions. Demand Managementkey function that needs to be tackledby the business.Demand management is aalignment challengeboth within the corporation andwith customers. Dayday issues associated with channelsandcustomers, such as categorymanagement, replenishmentagreements, and pricing agreementaffect demandopefullytheyincentivizpartners and customers to purchase more from your firm. But they also may impact demand patterns making forecasting more difficult. The more variable the demandthe more inventory issues are liable to crop up. These decisions and tradeoffs are the core of inventory optimization modeling. �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Market AcquisitionThe hanneltrategythe more channels with a variety of deals and arrangementsthe more difficult it is to properly promote all the models without cannibalizing existing product lines. challenging cycle of demand volatility and inventory management occurs. Promotional Pricingthis new social and mobile age, thishas become a real risk. But firms are expected to participate with their channel partnersto capturemarket share. That meansthattheuseprice and channel levels to gain that market at the expense of margins.New Product Introductiont the strategic levela highly competitivemarket also can severely impactyour inventory position. New features and models introduced into the market will naturally spawn countermoves.Perpetualinvestment in new products to stay ahead eats up cash. And rapid cycles onew productintroductions create inventory obsolescencelignment doesn’t happen without scalability enablersthat issystems. In each and every case, businesspeople with whom we spoke said that they could not scale their business or create alignmentwithintheir organization without a highly integrated solution to provide business transparency.We will return to this issue later in this paper. Whether these strategies are sustainable in the long run is not the subject of this paper. 7 ChainLink Research Copyright 2012 All Rights Reserve Figure 1: Inventory Strategy: More than Math! �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Risk Management and VolatilityVolatilityis not just a demandside issue. Supplier risk also has a huge impacton inventory strategy. Poor data from suppliers impactthe ability to determine productionschedules, the abilityto promise and make your customer’sontime goalsand manage the right level of ohand inventorySupplier quality andhow well you can recover from supplier errors and rework issues also causefirmsto carry plenty of justcase inventories, especially when long lead times are an inherent part of theoperationsIn logisticsshipping routes are vulnerable to geopoliticissues andhighly variable costs. As lane capacity is consumed in a growing economyfreight costs increase. And therealways the unpleasant factorof variable fuel costs. Companies can no longer rely on a fixed picture of reality, but need to have update information aboutchanging conditions in order to successfully execute their strategies. If the total supply chain cost ncreaseshould the sourcing strategy change? These are the pressing questions for many businesses today. The ata xplosionsVolume, Dimensionality and Visibility ChallengesFundamental to inventory management isthe acquisition, management, andvisualization of the ‘dimensionality’of the informationthesimultaneous abilitysee ventory across the supply chain and at the most granular level.Weneed to see it endend, topbottom” The volumeand complexity of the datae.g., largeproduct catalogues with many optionsand seasonal changescan be challengingto manage. Solving the visibility problem across business operations has become biggoal for many companiessince they operate such complex trading networksEven small businessesare often global and/or multisite. Employees and partners have to be part of a ‘living network’online and realtimeto understand the policies and thebest actions to take in various circumstances.olices about how inventory is madedatarecoperpetuity the batch, lot and serial numberused in many industriesThe sheer volume, data dimensionality, and “changing data just makes it hard to keep the picture in focus” one interviewee told us.productfreshnessexpiration, sellby datesas well as product characteristics model, stylecolorand its unit of measure for saleschange across the chainfrom lots to cases to items. Then there is the issue of how the data is represented: from orders, billof materialand recipesto graphic designs and product images in catalogManaging data and making sense of it is a big drivfor enterprise system implementation. For example, aerospace, high tech, food, and pharmaceuticals �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Industrieshave worked together to creatdata standards which enable information sharing andprovide sharper pictures of upstream and downstreamstatus. But standardsalso come at a priceompanies need a foundation in systemto support thestandards, as well astranslations to communicate with other companies.Lack of ohesiondue to disparateprocessand systemis another hindrance toisibility. And these issues challengemanyenterpriseCreating a cohesiveviewthen, becomes the first order of businessfor many firms to create singleversionof the truth the enterpriseis to successfully manage many of their inventory challenges �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 The Inventory Solution: Getting Beyond the DilemmaPart TwoWinning the Inventory Game in Volatile Markets: IPICO IPICO is a company that understands the value of precision timing. IPICO is the leader in the RFID sports solutions market. Since an initial market introduction in March 2007, IPICO Sports systems are now used in over fifty countries, and continue to develop and grow a loyal following across the globe. From Tokyo to London, IPICO timesmarathons and trackworld record holders as well as the back of the packThey continue to innovate in the sports industry with new solutions in other sports markets.Like so many global companies, IPICO has had to address the challenges of surviving and thriving in both an overhyped technology market as well as the volatile global economic crisis. Smart management has allowed them to perform and win through these market changes. “Our business has found a growth sector in the midst of a global recession” says, Gordon Westwater, President and CEO of IPICO. “There are other markets we operate in, but the enthusiasm of sports peopleboth professionals and amateursround the worldhahelped us growin the sports sectorWhere we are really growing is in Asia athese societies embrace all sorts of sports activitiesot just elite athletic events.”Besidessports, IPICO, has a highly diverse market andthereforehasa tremendous need for integrationbetween the company’s sales and operations. IPICO has their own innovation center creating chips and products sold into a variety of markets. They have to manage a diverse supply chain from chip design to contract manufacturer’s assemblers and off to distributors that may create the final ‘installation’ for a customerrom Beijing to Bangalore, from Manhattan to Manilaanywhere theirsales and growing list of distributors may take them. IPICO embraced a systematicway ofmanaging their businessin pacewith the products they sell. As Westwater said, “Once you measure someone’s performance, you’ve got a better chance for them to get betterThey found thatimplementingNetSuite suited their concept for the business. “We purchased NetSuite in a time when the business was growing in 2007; we had three development centers as well as local and field developers associated with custom solutions. uttingan enterprise system in placeto manage our growthwas the goal.Unfortunately the global economic sky fell and we had to pare down. If we did not have NetSuite already installed, I don’t think we would have managed the restructuring. �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Westwater went on to state, “There was a lot of product rationalization and now weare growing in many promising markets. This globalbusiness we are involved in is quite special and though we ow have a smaller employee base we are very effective andconnected around the world with NetSuite to manage operationWe are able to make critical decisions globallyThis pinpoint visiby is especially important in the cash lean and tight credit markets“Here was a business that was raising money and meeting thresholds for investors and we were successful at that. Now it’saboutstreamlining the businessur predominate metricnowis to be cash flow positive,” Westwater stated.Here really is the key to inventory management for a businesslike ours. Credit has become tight across the spectrum.” Westwater has noted that in the last fewyears credit has contractedso pinpoint balance between demand and sourcing is a must. “At one point you had a lot of manufactures who were very gracious with credit because there was a lot of worldwide capacity. Many of those manufactures don’t exist anymore. And all companiesare being squeezed with limited cash and not as much credit out there. So now you have to manage your own business more carefullybecause you are not getting those terms.“In a lot of cases you are paying for components upfront or 50% on order0% on delivery. No longer do companies have the luxury of providing you product and getting paid months downthe road.All this means that IPICO has to keep tight reinon their customorder business. To increasecash, businesses need to reducecashcashcycle times between customerpaymentaccountsreceivableor DSOsand supplierpayments (accounts payableWhen oupled with increasinventory velocitywhich can reduce DOSthese strategies speed up revenue recognition and free up working capital. This surely is a case for realtimeFirm orderleadtimes andminimum order quantitpolicies on the demand side become part of the policyto preserve cash and reduce or eliminateunsold inventory Days Sales Outstandinglater on. Or Inventory TurnsDays of SupplyObsolescence �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 On the supplier side, supplier risk has also become an issue, especially after Japan. “Our products are getting more complex as our business grows and we have had to deal with scarcity with our electronics suppliers. However, we have been able to rely on our systemto not only be mindful of our supply chainbut also our suppliersOn the channel side, e are now using the NetSuite CRM module and our sales people now understand the importance of using the systems and the value of the information for them. We are able to spend more time reviewing forecasts with our channel partners, so we have more visibilityam never blindsidedby changes or big orders from customers, now. With this visibility we can prime our supply chain to sure we have thecomponents we need for big events.”Having a cloud solution hasalsohelpIPICO manage these costs. “We didn’t have to worry about putting in place a hardware intensive solution for a global business with data center managementexpenses.Getting into the cloud has allowed us to reduce our fixed costs as a business, while increasing our communications and visibility across the globe.This strikes me as a great approach for businesseslike ours �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Playing to Win: Upper Playground Upper Playground is a company that understands how to manage though trendsand change!Upper Playground is a progressive retailer and product company.Since 1999Upper Playground has been committed to representing progressive urban lifestyles. With headquarters in the San Francisco Bay rea, as well as locations in Londonand Mexicoand sales through boutiques around the world, Upper Playground has established itself as a leader in the contemporary art movement. Products include art, apparel, trendy housewares and books. Upper Playground’s culture is about a passion for art and supporting young artistscreating a community within the retail environment. It’s ayoung company, yet complex. Artistsand designersworks are licenseby Upper Playgroundrtistcan see their work ‘scale’ (reproductions, original works, apparel and publishing). These productsare then sold through retail channelsholesaledistributors, and through their ecommerceand retailstores. Behind the scenes UpperPlayground is managing warehouseand logistics; it’s all part of the dayday concerns.Selling art is a passion; it’s not about managing the minutia. “The soul of Upper Playground s in the creative culture, not the scientific methodology management of resources” said Aaron Burns, CFO of Upper PlaygroundYet to fulfill their goals, this business, like so many othergrowing businesses, had to grow beyond the feelingbased management of key employees who know the business so wellrowing to multimilliondollarbusiness inmultiple locations required adifferent approach. “We needed more methodical modelsaid Burns. This wasachievedthroughsuccessful management of the business with technology and improved business processes. No longer could even the most knowledgeable employees just gaze across a stockroom and comprehend the value of the inventory of each cartonlarge warehouse with rich assortments ofproducts and understand what is the best strategy is for each item theresaid Burns. Upper Playground found that they could nohandle the huge level of inventory SKUin multilocationswith their current system. After evaluatingseveral ERPsthey ultimately chose NetSuite for their solution.The solution now allows them to create a visibleplatform fromwhich to manage the businessFor example, aligning purchasing with the warehouse has allowed them to see when shipments arriveThis kicks a whole process in motion. The information can thepropagateto accountingassigning a cost andinventory �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 valuations as salesforpricing.” These control points allow Upper Playgroundto efficiently managethe back officewith a small staff, allocating products to customersandpaying suppliers.In the paststoreand channels would order inventory from the warehouse. Ther inventory status was not visible until months later when the store receipts were settled. Now control reports allow them to see the inventory distributed across wholesale and retail.Like many retailersthey automated barcodingso that employeescan scan in the store and update information directly to NetSuiteincreasing inventoryaccuracy across the stores.ecause of the realtimeonline nature of NetSuiteinventorystatus is updated as productgoes out the doorgiving us a more accurate picture of the businessThis capability allows them to create a ‘positive customer experiencebothin the store and on the web.Importantly, inventory visibility allows them to evaluate sales by category. In apparel for example, hoodies can sell from $60 to $120 vs. ees, which sellfor $20. Managing sales for a hoodie, then, is very critical. More effective management onhigh price/high margin items cannet the company bigger profits. They cannow see if sales for certain itemare slow and offer thesefor promotion to channel partners (and consumers in their ecommerce site), keeping turnshigh, putting cash in the business and allowing themto create and offer fresh merchandiThis type of capabilitis often outof reach for smaller retailers who don’t have an integrated solution. Smaller retailers can be overwhelmed by the sheer size and detail of the data they have to manage, but by using NetSuitewhich is integrated from purchasingandfinancial to sales, Upper Playground habeen able to deal with complex issues such ainventory and pricingeven with a small staff. Not only has NetSuite allowed Upper Playground to manage their inventory operations, but it has alsohelped Upper Playground to manage the business through turbulent times in the global economy. “Wecan scale up or down operations in synch with demand, today, fairly easily” stated Burns. Many organizations think about demandriven as merely an inventorypurchasing issue. But for retailers, the gyrations in market demand can drive major changes in store locations, formats and channel selling. The last few years have seen even the largest retailersgo through radical changes in multichannel sales models, store closingand rethinking their merchandiing. With channel partners around the globe in some troubled economic locations, Upper laygroundexperienced the same challenges as the big retailer. But having a firm hand on thebusiness operations and costs through a tight set of integrated business processes has allowed usto deal with the shifting markets and manage ourcash effectively” assuring that they’ll beplaying in the art and retail scenein the future. �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 The InventorySolutionWhat’s it Take? Part ThreeBased on the above case studies and interviews weconductedfor this paperthere are significant lessons we can glean fromhow these companies managetheirinventoryand theirowncompanReal time visibilityurrent picture of the business. There is adirect correlation between information cycle time and inventory. The bullwhip effect isavoided when information cycle times are reduced.Multisite and mobileayered on top of thisfoundationis the ability to effectively manage out of the officeand onthe roadin customerssites, in hotel rooms, etc. Many firms are geographically dispersedand their sales and service teams are on the roadften in different time zones. They also need access to the inventory systems. So ERP needs to move beyond a onesite installation. Cloudbased ERPs can really help here, allowing foraccessanywhere, anytimeto this critical information.ealtime visibility seems to be the foundation for enterprise cohesion as well as collaboration across the supply chain. Single Version of the Truthhe corporate database. ack of cohesionresults from poorly integrated environments due to overreliance on spreadsheets, paper processes and latency in information. The realtime foundationcoupled with highly integrated functional modulesallows the organization to have single version of the truth.Crossnctionaldisconnects are reducedandbackoffice activities can bemore productivereducing the ‘checks and rechecks’ inherent in disparateenvironmentsDynamic Architectural Foundationnoted the case studies and many other sources, collaboration on the web is a big factor in managing global supply chains. Cloud presenceonlineall the timeand integratedand interoperable with many data sources tosupport applications and trading partnershas beenenabled by the web. Supply chains are broader than the enterpriseand the ability to communicate, transact and provide visibility in The Bull Whip Effect in Inventorythe farther one is removed from the source of the demand forecast, the more variable that forecast becomes. If suppliers are at a distance from markets, they are unlikely to receive timely information, which causes them to hedge. Most firms increase their forecast in lieu of reliable information to assure they meet customerservicelevel agreements, thus the total supply chain costs increase. “In the realm of inventory managementthe issue of connectedness and visibility is probably the single most important value to calibrating the right inventory policies and stocking strategies across the business.“ “The realtime foundation brings the organization together and helps them understand how the organization needs and relies on the information they provide.” “Our ability to succeed grew when Sales and Operations shared common motivations and a clear understanding of how to collectively act together.” �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 realtime is enhanced by cloudtechnologies. Alertness and the agility to respond topside and downside activities requirean open architecture.Analyticsf course, any software must provide strong inventory planning, managementand analyticcapabilityIts ability to plan, set inventoryeves, identify trends and be able to respond, replan and analyze is essential. Users who implement moreanalyticapproaches to their inventory management experience a major step up in business performanceThey also lighten the burden forthose involved in planning, pricingand managing the inventory. Alignment and Controlreating alignment between operational processes and the corporate goals. Here is where operational scorecards aligned with suite goals and metrics are important. How do tactical decisions about purchasing inventory impact the corporate goals for sales, profitand cash? What levels of decision making and what kindof decisions are appropriate for different employees to sure that streamline, responsive and appropriate decisions are being made all levels of the enterprise to support thecompanygoals? Today, operatwith this commonenterprise base of realtime informationreally requires an enterpriseolution “I have the visibility to whole business no matter where I am with NetSuite in the cloud. No matter where I amPeoria or PretoriaI can check on sales and other vital information.” 17 ChainLink Research Copyright 2012 All Rights Reserve Figure 2: Inventory Management in the RealTime Enterprise �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 In this global volatile world, enterprise needsto make very precise decisionabout when to investand purchase, and about payment terms with suppliers and customers. “Goneare the thirty day payment terms from our suppliers. They now expect 50% upfront upon order, and the balance upon delivery. That means we have to be sure about firm commitments from our customersays Gordon Westwaternderstandingthe financial impact of purchasing, the value of current inventory and the velocityof sales helps to make better decisions in the long run on inventory policies, and in the short runon whether to hold, sell, discountor writeoff inventory. he ERP shouldnot just be a financial/accounting systembut should hold current data, locations, and aging information. So many businessesare sitting on idle assets, since they just don’t have time to deal with daily inventory management. Often they are focused on current sales fulfillmentand idle stock ignored. But if freeing up working capital for new investments and improvingthe profit picture are your goal, then addressingthe inventory dilemmais criticalA Case for CloudOne of the issues often overlooked in enterprise software purchasingis the rate of change inherent in most business. Users are always growing into having greater needs; butERP upgrades to traditional onpremise systemcan be highly disruptive, expensive, painful events. As a result, businesses using onpremise ERP systems often postpone upgrades or system changes for years, which preventthem from making the dynamic changes they need to stay competitive. It also prevents them from having the dynamic inventory strategies discussed earlier. In contrast, cloudbased systems are being updated continuouslyyou always have the latest version. And they are usually more easily configurable, allowing you to set up and change as needed.Having a flexible and adaptable foundationreadilyavailableas the business needs it, can help your business change as circumstances and needs changeWhen companies own their own systems, they usually pay too much for this flexibility. Seasonal businesses, for example, have allocated limited budget and capacity for computingpower. This strategy works in the slow seasonbutnot in their busy season. And businessesgrow,usually the last thing on their mind is disk spaceCloud providers can monitor and provide upsideas needed. This issue is not just for small business. Many famous examples of websites crashing during busy seasons or exciting new product introductions have been discussed in the press. �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 Managing data centers, reacting to system problems and outages, having to manage system upgrades and tech supporcan be very disrupti, timeconsuming, and more importantlyattentionconsuming for business, especially small and midsized firms. Their real love is their passion for the company, their customers andcreating exciting productsA cloud solution enables companies to focus on crafting and executing the best strategies forserving their customers profitably. Cloudbased systems are often superior at providing connectivity to data sources and trading partnerscustomers, suppliers, and service providers like logistics and transporation carrierswho move and manage the inventory as it flows across the supply chain. This makes cloudbased systems a better platform for providing a singleversion of the truth and nearrealtime visibility across the supply chainWhen everybody can see who is holding what inventory, changes in demand, and changes or delays in supply, what follows is more responsive and precise inventory management._________________________________________________________________________ConclusionConquering the DilemmaSo what are some of the lessons learned from companies who are dealing with and managing the inventorydilemmaere aresome of the toplessonsDirect correlations exist between data speed and accuracyandcompany performanceinventoryturns, cash and growth. anage inventory asan ongoing process, not a reduction program. The world and your business are constantly changing, so you must also change. It’s not about lean inventoryit's about the right nventory.Creata transparent business modewhich synchronizdemand and supply.Integrate the back office with sales and supply chain. Coordinatactivitiesleadto a reductionin paperwork and chasing administrative errors. But more importantly, your purchasingdecisions become integrated with actual demand; your warehouse reflects true inventory status to demonstrate product availability;and you can analyze your opportunities to improve your sales.Understand and manage supplier riskimprove supplier performance and trading partner relationships.Providaccurate and timely information to the extended enterprisechannel partners, distributors, suppliers, and otherthirdparty services. Thisunites them in the enterprise single version of the uth andpositively impacts inventory decisions. Empower employees for decision makinggive functionalteams and employees full visibility of the impact of their decisions and actions across the enterprise. Relying on key employees who just‘eyeball’ a situation andthink theyknow whatgoing on does not scale.Make it all realtime. Create a realtime enterpriseusing the power of cloud technologies.Align and manage dayday operationswith the suitereating and managing an enterprise operational scorecardis key. Goals are then obvious to all employees and are reflected in their dayday work. Management can assess performance, not months later, but as neededto adjust to market conditionsup or down. �� Conquering the Inventory Dilemma ChainLink ResearchAll Rights Reserved 2012 A really key point is that businesses experiencing growth and dynamism need much more than accountinghey may be small, but they are sophisticated, often complex, frequentlyglobal, and thereforeneed the same tools and capabilities as their larger competitors, delivered in aneasy to digest platform. Many SMBs have upgradefrom smallaccounting packages to an ERP, which can give themclear windowinto their world that they did not have before.Although the initial automation of previousmanual processes can often be distressing for some employees, over the long run frustrations are reduced when everyone is workingfrom the same platform. At the end of the day it is about becoming ‘more selfaware’ as one business stated, “It'ssimplementing their ERP systemmade us more selfawareeverything is visible now, and that's the only way to succeed when the market is growing so fast. Aaron Burns of Upper Playground INSIDE BACK COVER INTENTIONALLY BLANK 719 Washington St., Suite 144Newton, MA 024586177624040Email: info@CLResearch.com Web: www.clresearch.com