Sunday, September 2, 2018

What's wrong with this picture?

Just this week I came back from an analysis on how a very large, global company is planning their replenishment of purchased raw materials and manufactured goods. We've looked into many functional areas and interviewed most of the users in that plant. Then there was one thing that really stuck out to me. You can see it in the following graphic:

The graphic shows one of their highest mover's consumption and receipts pattern as posted into SAP. when the red line goes up the receipts outweigh consumption and if the line goes down the opposite is true. The resulting level represents the inventory holding of that day. Whilst it is not difficult to discern that there is an upward trend of some sort going on over time, the real question is why does it consistently go up.
The easy answer is that there are simply more receipts than issues. Yes, but why do they keep on bringing more in than they consume? Wouldn't it be prudent to adjust the receipts to the issues so that the inventory level stays at the same low level as it was in June 2016 (which was plenty)?
To make my point of what's happening here, I also called up the Receipts/Issue diagram in SAP. It displays cumulative receipts and issues and if you take a close look you can see that the gap between those ever widens - which means receipts consistently outweigh issues or consumption.

Back to the question why and the 'not so easy' answer... if you look at the red line (inventory) you can see that consumption goes down very regularly (it's always the same angle). But receipts are pretty regular too. Only do they go up steeper than the issues, which go down flat. There are a number of dynamics going on here. For one this material is planned deterministic by placing replenishment orders with a long lead time to an anticipated demand. That demand is stubbornly overstated and there is no check in place when inventory keeps rising. Also, the planner is much more afraid of stock-outs than they are punished for holding too much inventory. Therefore, if one can't look at every part every day then keeping it coming is not a bad solution for them.
In my relentless efforts to try to convince organizations that placing buffers to absorb variability is better than to try to bring in... 'exactly what I need in exactly the quantity that I need it at the exact time that I need it', I often am faced with resistance to do so (calculating and placing buffers after analyzing historic consumption by the system) because planners do not want to hand over their calculations to SAP. They'd rather do it themselves to stay in control...

look again at above graphics! How did that work out for you?