THE FAT IS GONE—NOW WHAT?

It's no surprise to anyone that in today's environment, there's little room for error in managing performance. With decreasing customer loyalty and increasing pressure on predictable performance and profitable growth, there's simply no "fat" left. Yet the effort to reduce costs has resulted in highly extended supply networks—creating many additional failure points in the system that can restrict responsiveness to change.

Historically, manufacturers improved customer service and change responsiveness through the use of expensive "just-in-case" practices such as running excess capacity, expediting orders, and carrying inventory buffers or safety stock. Yet these practices are ineffective, as Charlie Barnhart of Technology Forecasters, Inc. recently wrote:

Randy Littleson serves as vice president at Kinaxis and has more than 17 years of management experience, having held executive-level positions at Interface Software, Spyglass, and Palindrome Corporation (a Seagate company). To discuss this topic further, join him online at blog.kinaxis.com.

While adding inventory to the supply chain may look like a quick-fix to the challenges created by remote supply solutions, it is not. In practice, it tends to make companies less responsive to market dynamics—not more.

Yes, you read that correctly, adding inventory reduces a company's ability to respond to the marketplace. And it does so no matter which way the market moves. How can this be?

When an up-tick in demand occurs, even if you have every line-item on hand to build the product, it's probable that you will be limited by the availability of shortterm manufacturing capacity.

When a down-tick occurs, inventory (in spite of its classification on the balance sheet as an asset) becomes a major liability to the enterprise. This is true for three reasons:

Inventory uses up a company's liquidity, Inventory consumes administrative and physical resources, and Inventory is perishable and decreases in value the longer it sits.

When the market goes quiescent, like all complex systems, it begins to evolve. Current products get updated, new products are released, and old products get eliminated—none of which bodes well for inventory sitting on the shelf.

In an increasingly outsourced manufacturing environment, the ripple effect of unexpected changes is even more pronounced, making traditional "just-in-case" measures less viable than ever as a response strategy. Instead, original equipment manufacturers (OEMs) and contract manufacturers must empower front-line decision-makers with the information and solutions they need to effectively "manage at the moment" and reduce or eliminate excessive "just-in-case" practices.

Response Management software is the key to empowering your organization to respond to change. And effective response to change is the key to unlocking simultaneous improvements in customer service and operating performance.