Hello Friends,
I specially thank Perry Zalevsky for providing the interesting information about the issues Mill Products Industries faces and helping me in finding right solution for the this. I have summarized below the points Perry has discussed with me on LinkedIn. Hope this would be helpful!
There are few things which need to be taken in to consideration while evaluating the days in Inventory as KPI.
- Material Availability: There are the cases where Mill Companies need to buy raw material in bulk because that can be the only way to buy them. So it may be difficult for them to reduce inventory level in that case.
- Asset Utilization: Many Mill companies invest high capital in their asset so asset utilization become their key priority.In that case it is more prudent to keep their expensive machines running rather than stop producing. this may lead to higher inventory levels.
- Amount of Business:Customers are concerned with prompt delivery of orders. To improve responsiveness, some mill products companies requires to keep certain buffer stock so this may result in to high inventory levels.
- Production Planning:Production Planning or, more likely, production scheduling rules may require more inventory to support a smooth running plant. For example, to transition from one material to another, an intermediate material may need to be processed on a machine. So, the plant would have to keep some of this material in stock and make it available when it is needed. It is not going to a customer yet it would count in inventory numbers but could not be eliminated.
Suggested solution
- Inventory optimization which takes in to accounts various factors like material availability, asset utilization, demand uncertainty, working capital tied up in inventory etc. can help them to keep their inventory at a level (not necessary low) which can minimize supply chain costs, Increase machine efficiency and at the same time achieve customer service level.In this case SAP Enterprise Inventory Optimization by Smart Ops. may help.It is mostly useful in case of Building material, Furniture and Packaging industries.
- Asset Utilization:In case where asset utilization is a much higher cost driver than inventory management production planning and scheduling tools such as SAP Advanced Planner and Optimizer (APO) may be used.It is mostly used in Metals and Paper industries.
In case if I have misinterpreted any thing or something missed by me i would be very grateful if the same is brought to my knowledge.Further, any comment on this is warmly welcomed.
Regards,
Pratik.
