The company I had just joined went to market declaring that it was a world leader in Distribution and Logistics. That was a clear contradiction to the Inventory Turnover Mystery I was about to discover.
As I settled into the job and started learning, and studying, the various Supply Chain metrics I was surprised when I looked at the Inventory Turnover performance of the company.
Looking at recent and historical Inventory performance I could see that turnover always stayed around 5-6 turns with little variation. Everyone seemed content with the situation and unmotivated to make it better.
For a company that declared their world leading capability I was astonished. 5-6 turns? True leadership in this areas would require double digit turns.
I needed to figure out what was truly going on and get this Inventory Turnover mystery solved. This was another case for the Supply Chain Detective™.
Setting the Stage for the Inventory Turnover Mystery Investigation
As with any investigation I had to start by talking with as many people as possible and getting as much information as I could.
First I would talk with the 3 main people in charge of the Inventory Management and Procurement buying functions within the company. After the introductory conversations I invited them all to meet with me for a 3 day detailed debrief meeting the following week.
Next I set up my travel schedule for the following month. I would travel to every Distribution Centre in the company around the world. I wanted to see for myself face to face the people working for us and learn about what was going on first hand right where it was all happening.
In preparation for all of this I did a deep dive on all the the information, charts, and reports available on every aspect of operating performance, including of course inventory. On top of that I did some benchmarking for the industry so that I knew how the market leaders were performing and where we stood (which was at the bottom of the class).
Investigation Stage 1 – Meeting the Experts
I had the company’s 3 leaders for Supply Chain, Procurement and Logistics in town for 3 days to go through a deep discussion about everything. We would cover organization, metrics, performance, plans, strategies, and more, all in as much detail as was necessary.
This would ensure that all of us were at the same level of knowledge and understanding of the situation. After all we were in this together. If we had this level of synchronization we would be aligned when it came time to develop our attack plan.
Organizationally I learned that while there was one person responsible for Inventory performance tracking this person was not given a lot of time by the Executive team. He was incredibly intelligent but my predecessor had lacked experience in this area and as such it was neglected. There was no mentorship given to promote the team and raise visibility to inventory. As such there was a lack of motivation and Executive support to advance inventory as a critical item.
I also learned that the Commodity (or Category) Management function in the company was equally under appreciated. They were responsible for negotiating contracts, pricing, terms and conditions, and selecting/managing suppliers. But none of it received any attention or focus.
The Buying team was also highly decentralized with little formal oversight. In many cases this was fine but in my experience the best way to manage the Buying function was to ensure that the highest value parts were micromanaged by the very best and brightest Buyers. These “A” class parts needed very specific strategies for buying and for inventory management. If you can optimally manage the small number of parts that constitute 80% of your purchase value then you can make big changes fast.
When we looked at the past performance and forecasts for Inventory turnover it was obvious to all that we had been paying lip service to this area. There were no targets. Turnover hovered between 4-6 turns month after month, year after year, with no signs of improvement or actions to get this area on track. There was no concern or talk about cash and cash cycle management at all.
All of the data was there but no one was paying any attention to it.
A deep dive on parameters revealed a lot about what had been going on. When we looked at lead times, safety stocks, order replenishment times, and inventory levels, all on a part by part basis, what we saw was shocking.
Countless parts had a year’s worth of inventory on hand, 9-12 months of safety stock set in the system, and extensive lead times which had never been checked or negotiated.
Purchase orders were not aggressively managed to reflect the latest fluctuations in customer demand. Customer requests for buffer inventories remained unchecked. The number of suppliers for basic commodities was massive and opportunities to reduce sources were non-existent.
And to top it all off most of the parts could be reordered and supplied in a matter of days and weeks to support most any demand fluctuations. All of the inventory and buffers and long lead times were completely unnecessary.
We ended the 3 day session with collective agreement that this situation was going to be turned around. The team had my complete support to do anything and everything we needed to dramatically improve our Inventory performance.
There was nothing complicated here. We didn’t need new systems. We didn’t need capital. We didn’t need anyone’s approval.
We just needed to have the resolve, and conviction of our actions to get the job done. I gave the team a goal that we would all commit to. We were going to lead the industry in Inventory turnover performance within a year. They agreed but I knew they had never got this level of Executive interest, commitment and support before.
Investigation Stage 2 – Getting out on the Field
I spent the better part of the next 2 months travelling to 2 dozen Distribution Centres all over the world.
I met with every team. I set the stage early. I did not want to get fluffy, high level powerpoint presentations. I did not want to just do the tourist tour of each facility.
I wanted to go into every aspect of each operation in depth. We would take as much time as necessary to go through everything in tremendous detail.
Most of the people had never been asked to go through this. In the past my predecessor hadn’t even been to every location. And the places he did go to involved cursory, surface level discussions with no depth at all. More clues to the Inventory Turnover Mystery. That was going to stop on my watch.
In every operation there were several observations I had. First there were truly a phenomenal number of very intelligent people in every location. But no body outside of each location knew it.
Every location operated like an island unto itself. Even though the basic tasks being performed throughout the operation were the same from one location to the next, every single location had there one nuanced way of doing them.
Every site had to receive goods, store them, control them, process them, package them, and ship them. Sounds simple. But every single site had customized these processes for their own purposes and made system changes to accommodate their unique processes.
The result was that we were suboptimized everywhere. There should really be one best process for receiving goods, for storing goods and for shipping goods, as an example. If we could identify these best practices and then deploy them homogeneously across the entire company then the benefits would be phenomenal.
We could improve productivity, lower costs, reduce lead times, improve quality, lower inventory levels, improve morale, and increase customer satisfaction.
The result of all of this is that we established a single program we called “Global Process Excellence™”. We identified the top 12 operating processes in the company. We assigned teams, with representation from across the globe, with the mandate to identify best practices for their respective processes and then develop and deploy an implementation plan for putting these processes in every location.
The level of involvement, empowerment, learning, and control that we had established for all employees was unprecedented. We eliminated the islands and created one united global team.
Inventory Turnover Mystery Progress and Results
Accompanied by a regimented process of governance, involving weekly reviews on results, actions and status, we started making progress. Regular governance provides a forum for not only developing relationships but to continually discuss what was working and what was not working. If necessary we could make course corrections, insert new ideas, and further evolve our strategies in real time.
After a couple of months we started to see a marked improvement in Inventory performance. With monthly reviews by the entire Executive team they could see where we were focussed. Their support was solicited as necessary. And the team doing all of the work was front and centre in communicating results and plans, all with my backing.
In 9 months we DOUBLED our Inventory Turnover Performance!
Nine months after we started the project we had doubled our Inventory turnover performance and we were leading the industry. A level of performance that wasn’t even imagined before had been achieved.
The level of confidence, development, poise, experience, and command in all of the team members had increased remarkably. And with good reason. They had achieved what some would have considered impossible and they did so in an incredible short period of time.
What was the secret? The pragmatic, objective, in-depth investigation of what was truly going on was the secret. Combined with experience, support and commitment we achieved outstanding results.
The Inventory Turnover Mystery had been solved!