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THE OUTSIDE-IN PLANNING HANDBOOK | 2023
that a customer will be happy to pay for.) Mature organizations understand the differences between inventory as a buffer and quickly resolve inventory waste issues, while immature organizations implement technologies betting on better
material inventories are more volatile due to the bullwhip effect. For example, in paper manufacturing, note the amplification of the signal. No planning technology today measures and uses the bullwhip impact in calculating raw materials inventories.
answers from optimization. While the traditional planning solutions focus on managing safety stock, they miss the focus on a holistic inventory strategy. As a result, total inventory is not managed in existing systems in most organizations. Today, network design technologies, in concert with supply chain planning, help business leaders set targets for the form and function of inventory, as defined in Table 7. In outside-in processes, inventory targets for the form
We share a calculation of the bullwhip impact in the Appendix. In process flow evolution, the advisory group brainstormed the future state. Note in the current state of functional silos, planners work in isolation, often using spreadsheets. Currently, the organization does not see flow or manage variability. In visualizing the outside-in state, demand, and supply are managed as flows through a collaborative platform. In this future, the business leaders become the targeted users focusing
Table 7. Definition of Form and Function of Inventory
Form
Function
Supplier owned inventory: raw materials
In-transit Inventories: Inventory that is on trucks, barges, and containers. The longer the trade- lanes and the slower the mode, the larger the requirements for in-transit inventory. Cycle Stock: In the planning of production, finished good production is cycled to ensure that the production lines are fully utilized. The average rotation between products on production lines in consumer packaged goods is three weeks Safety stock: Inventory requirements to buffer demand and supply volatility Seasonal Inventories: Inventories required to support seasonal builds. Promoted Items: Inventories to support the promotional lift to support a promotion.
Company owned inventory: raw materials
Work in process (WIP) inventory Finished goods at the company warehouse Finished goods in the channel
and function of inventory happen with each monthly process cycle in the design step before S&OP. While most companies focus on finished goods inventories, raw
on the relationship of outcomes to a balanced scorecard and collaborative platforms to agree on demand shaping/shifting strategies and go-to-market plans.
Figure 9. Raw Material Inventory Comparison to the Value of Shipments for the Paper Industry
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