Confessions of a Former Buyer: Sneaking Around the System!

View From The Ridge: 41

January 29, 2016

Sven Aunapu

Director of LifeLine Services & Education

The typical day of a planner is usually quite busy, and many times their daily tasks actually take more than a day to complete.
When a planner’s ability to get a day’s work done becomes consistently hard to complete, we should look at the root cause and then help to solve the issue. Without any attention, these ‘time constraint issues’ will leave a planner searching for shortcuts to get through the day. This is all in an effort to reduce the “noise” that will inevitably come from ineffective management of items. Unfortunately, these shortcuts and workarounds won’t prevent that “noise” from turning up.

Applying Seasonal Profiles to Reduce Demand Variability

Planners are often tasked with reducing inventory.  They know that typically when a seasonal profile is applied to an item, the demand variability will drop. Demand variability reduces the amount of inventory needed for safety stock, and abracadabra, we have an inventory reduction. Unfortunately, if that item isn’t actually seasonal, the profile is describing an inaccurate demand pattern and we can conceivably end up either overstocked or out of stock for part of the year.

Champion Role:  Look at profiled items that are missing service where the forecast accuracy is substantially off. If you have items with demand consistently misrepresented in the forecast, check for bad profiles.

Hold Outs / Reserve Quantities

Many times we see planners who try so hard to hit service goals that they will add inventory to make sure service is met. Rather than take the time to make
sure the components that drive safety stock are correct (and save time in the long run) they will use SCP’s “Hold Out” or “Reserve Quantity” logic to add inventory (but hide it from the system). Service may in fact be met, and in some rare/infrequent cases this may be the appropriate strategy to use, but it will likely involve extra unnecessary costs. The bottom line is that using Hold Out or Reserve Quantity carte blanche is not a best practice strategy.

Champion role: Run periodic reports looking for Hold Out/Reserve Quantities. Discuss why they are being used, and determine which other tools may provide a better solution.

Over Riding Safety Stock

Another way that SCP planners may add (or reduce) inventory is to bypass the safety stock calculations recommended by the system. A user can dictate how many days (or units) of safety stock to carry. In the case where they want to reduce inventory they will reduce the number of days or units. Conversely, where they want to protect service, they will increase the number of days or units of safety stock. This is usually done without consideration of the components that drive safety stock and the result is often under or overstocked.

Champion role: Run periodic reports identifying those items that are overriding system safety stock calculations. Take the time to review these items and the components that drive the safety stock.

Freezing Forecasts

This one is going to sound like a stretch, but it has actually happened. When planners try to control the number of exceptions that they manage, they
freeze the forecast. When frozen, the forecast will not update until it reaches the designated end date. Granted, you will have fewer exceptions, but your forecast won’t be accurately updated.

It is better to ‘fix’ the cause of the exception than to ignore it. If the exception was a one-time occurrence, then it shouldn’t be a problem.
“Freeze Forecast” is a useful tool when applied correctly (pipeline fills, factory closings, etc.) and a major detriment when used incorrectly (missed service, excess inventory).

Champion Role: Identify those items with a frozen forecast using SCA (Analytics) and the “ForecastFreezeStart”/”ForecastFreezeEnd” fields and discuss.

Inflating Lead-times

Unfortunately, another common misuse of the system is inflating lead times. While adding additional lead-time days will cause you to carry more inventory (and give you that extra padding for service goal attainment), it will also cause you to carry additional safety stock. It should be noted that inflated lead times might be the result of not updating the field in the system (if you are not using lead-time forecasting). Always tell the system “the truth”. If there is a problem with inconsistent lead times, adjust lead-time variability, and remember to check the other components of safety stock.

Champion Role: We have developed a new report to help identify those vendors with inflated lead times. Reach out to Jessica DeMarco or me to talk about adding this report to your set of Inventory Management Tools!!
These are just a few of the ways that users can try to outsmart the system. Trust me, I’ve tried and been caught with every single one of them! Take a few minutes every day to perform the necessary management of the system and in the long run you will have the time to complete your daily tasks, plus you won’t get caught taking shortcuts!