July 24, 2003/Situation: "Our ongoing mission is to increase the velocity of the inventory moving through our supply chain, improve the quality of our inventory mix, and improve the service level we provide to our customers and field sales force," the vice president of supply chain solutions at a major distributor of electronic components and computer products explains. The distributor serves as a supply chain partner for more than 60 suppliers and 175,000 customers through a global network.

Problem: "Because our parts typically experience high turnover and have short life cycles, we have a high risk profile in relation to our inventory levels," he mentions. The distributor also has found it more difficult to address the challenges presented by "an increasingly complex and dynamic market environment" with its legacy system.

Solution: To address its critical challenges for improved demand forecasting and fulfillment and supply management, the distributor chose a set of solutions from Manugistics (Rockville, Md.; www.manugistics.com). "The overall solution helps us to avoid the costly mismatch of demand and supply by acting as an early-warning system, predicting future customer demand, alerting us of potential supply problems, and finding patterns undetected by traditional solutions," the executive describes. For example, one product, the Manugistics Fulfillment Management solution provides a comprehensive distribution solution that optimizes positioning and movement of inventory to help the company meet customer demand for maximum revenue optimization. In addition, the vice president notes, "It enables us to determine how much inventory to hold, where to hold it, and how to allocate it efficiently and effectively to help ensure profitability."

Hybrid strategy helps to precipitate up to a 60% reduction in safety stock

Situation: A large contract manufacturer of circuit boards and other high-tech components sells high-value, short life-cycle products. "Our manufacturing processes are very complex and include an involved sequence of assemblies at different stages, requiring us to hold large amounts of finished goods inventory," a production and inventory control manager shares.

Problem: "We long recognized that a 'make-to-stock' philosophy was not the ideal strategy for our supply chain," she explains. "Our goal was to streamline our supply chain to meet three specific objectives." They included reducing safety stock levels without sacrificing service levels; reducing promised lead-time to customers while reducing inventory and increasing service performance; and developing a flexible supply selection process. "We also wanted to examine these objectives under different cycle times, inventory turns, and safety stock assumptions," she offers.

Solution: "We selected Inventory Analyst (LogicTools, Inc., Chicago; www.logic-tools.com), a multistage inventory optimization solution, to assist us in redesigning our supply chain to a hybrid strategy where portions of the supply chain are 'make-to-stock' while others operate in a 'make-to-order' environment," the P&IC manager offers. "The solution helped us to pinpoint the appropriate supply chain 'push-pull' boundary, determine the optimal location of inventory across the manufacturing process and calculate the optimal quantity of safety stock for each component at each stage." The end result is a supply chain with a lower inventory holding cost, reduced inventory liability issues and increased customer service levels and reduced customer lead times. Specifically, she cites the following achievements: "Overall, we were able to reduce safety stock levels in the range of 40% to 60% for the same customer lead times, and also achieved over 30% reduction in safety stock for products where the committed lead time was reduced by 50%.

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