Each plant or functional group, in the supply chain, can be evaluated relative to its own effectiveness. However, linking all of the processes along the supply chain is more important in driving down overall cost and increasing the effectiveness of the supply chain. This is accomplished by managing and optimizing the flow of materials, end-to-end from its origin through the entire manufacturing processes, to the customer. This process usually occurs across multiple enterprises. SCM is typically focused on the procurement processes and the management of the demand and supply schedules. This includes purchasing strategies, optimization of inventory along the supply chain, and the management of uncertainties in the supply chain.

Typically supplier managed inventory takes the form of warehouse locations in close proximity to the customer, where large amounts are stored and managed by many suppliers. Other solutions include dedicated warehouse locations where suppliers are challenged to “optimize asset utilization”. The objective in all scenarios is to let the supplier manage the risk and cost of carrying the inventory. In some there is risk and cost sharing, but most of the burden is borne by the supplier. Our SMI methodology works in conjunction with pull systems; process synchronization; and puts the supplier at the customer location and in many cases at the point of use within the process. This brings the supplier into the supply chain team and provides opportunity for immediate feedback on quality levels and changes in demand. We focus much of the supplier’s effort on solving the problems associated with their ability to provide the quality, delivery and flexibility required by the customer.

It has been our experience that inventory is not typically planned in a rigorous manner. Most inventories are planned against a sales forecast or a planned inventory level. It has also been our experience that the sales forecast is usually wrong, and a planned inventory level is difficult to maintain, due to volatility of demand. The perception of managing thousands of parts yields to a systems approach and a policy approach for controlling those parts. But the uncertainty principles around inventory cause a percentage of the policies to recommend the wrong action, or no action at all at any point in time. Our methodology details a simple approach that deals with these uncertainties, and the impact that uncertainties have on the thousands of parts that make up systems and subsystems. Our methodology reduces the number of variables that must be managed and focuses on managing demand uncertainty and supplier reliability. Demand uncertainty is the variability around what your customer wants, at any point in time, relative to what he ordered, or what you have forecasted. Supplier reliability focuses on the supplier’s ability to deliver on time, at the quality levels expected and the ability to flex with changes in demand. The objective is to create a data base that can be used to calculate these uncertainties and hence the inventory buffers and total inventory for each SKU. When this methodology is fully implemented, an inventory strategy, based on the uncertainty principles, supplier or process lead time, and a customer service level, is in place.