inventory – Page 2 – The OM Blog by Heizer, Render, & Munson

OM in the News: Restocking Inventory and Supply Chain Snarls

Find what you needed this year? It might be because you got someone else’s return. More retailers are working to quickly get like-new returned items back into their systems for sale, writes The Wall Street Journal (Dec. 28, 2021). They are hoping to fill shelves and websites, as supply-chain snarls limit the availability of some new inventory, and reduce the cost of handling returns overall, a bigger expense in recent years as e-commerce sales climb. A product sold online is more likely to be returned than one purchased in a store where a shopper can see and touch it first. Retailers are investing in automation, software and new warehouse systems that help cut the time it takes for returned products to become salable inventory.

American Eagle focused on streamlining returns last year after the pandemic shut down stores, the company’s main return channel. That strategy has paid off, as supply-chain problems this year delayed shipments of some of the company’s bestselling products. The company set up more warehouses to receive, clean and repackage returns, and employed new technology to gauge product demand to determine in advance which items are worth fast-tracking back onto shelves. Returning a product to shelves, depending on its priority status, now takes the chain 6 days, down from 14 days before, and costs around half as much.

Gap took a sales hit of around $300 million this quarter because supply-chain disruptions led to a lack of inventory. The retailer has focused on more efficiently processing returns during the pandemic when e-commerce sales surged and physical stores closed. Gap recently added new automation that helps return products to “in stock” within an hour of arrival at a warehouse, versus a couple of days with the previously manual process.

Walmart has been returning more like-new items to shelves as well as looking for ways to sell gently used products. Walmart already sells refurbished electronics on its website and in some stores, both to become more efficient and help reach the company’s sustainability goals.

In the past, returns were an afterthought. “Just a last thing to be processed, and it takes a while to get back to in-stock or just goes to close out sale. With the supply chain issues, we’ve been working with them to see returns as part of their inventory” said one CEO.

Classroom discussion questions:

Why are returns more important than in the past?
What can firms do to make the return process more efficient?

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OM in the News: Inventory Shortages Can Lead to Overproduction

In the throes of the sticker shock Americans have been experiencing lately, it is hard to remember an oft-repeated lesson: Shortages can suddenly turn into gluts. The combination of bottlenecks and robust demand has pushed prices for all kinds of things higher, but some of the most eye-popping increases have been in the prices of manufactured goods that rely on global supply chains, writes The Wall Street Journal (Nov. 23, 2021). Prices for washers and dryers were up 30% from the pandemic’s start, with prices for furniture up 12% and prices for new cars and trucks up 11%.

Further, shortages of some manufactured items are creating inflation elsewhere. The dearth of new vehicles has made it hard for rental-car companies to restock their fleets, which is a big part of why it cost 49% more to rent a car than before the pandemic. Fewer new car purchases by rental companies in particular has led to fewer available used cars, and used car and truck prices have risen 44%. With inventories low and what appears to be a lot of unsated demand out there, it is easy to imagine prices continuing to go up.

But imagining that supply-demand imbalances will persist, and then finding that they won’t, is a common occurrence. Pig breeders and cattle ranchers have regularly responded to high prices with production increases that initially aggravate shortages but then lead to gluts in the so-called hog and cattle cycles that drive huge swings in pork and beef prices. A similar dynamic occurs in shipping costs, and ship prices. And back in May, when prices were surging, it didn’t seem as if framing-lumber prices were going to fall by more than half—but then they did.

In the year ahead, even slight relief of some supply-chain issues could have significant effects. For example, there are a lot of partially built vehicles that car makers have parked around the country which will be rolling into dealerships once necessary chips are installed. Earlier this fall, many retailers were imploring consumers to get their holiday shopping done early, lest supplies run out, yet last week Walmart, Target and TJX all said they are well stocked for Black Friday. Lower Covid-19 risks would also help alleviate some supply-chain snarls, especially in countries outside the U.S. that are major sources of manufactured goods.

Classroom discussion questions:

Why can inventory shortages turn into gluts?
What is the relationship between shortages and inflation?

OM in the News: The Post-Pandemic Inventory Dilemma

Budweiser brewer AB InBev shared the cost of undrunk beer with its distributors during lockdowns.

From undrunk beer to unfinished forestry equipment, businesses deliberate just-in-time or just-in-case inventories, reports The Wall Street Journal (Nov. 8, 2021). Companies are wrestling with how big their inventories should be, since the pandemic highlighted the dangers of having both too much and too little stored away.

When the pandemic first struck, and demand for many goods dived, some companies were left holding large, costly inventories. But closed borders, strained supply chains and rebounding demand meant bigger stock buffers can prove positive. Now, the question of whether to maintain costly extra stockpiles or risk getting caught out again by disruption has emerged among the host of dilemmas businesses face, from whether to reshore production to how to best transport goods.

Businesses from Nissan to PepsiCo say the decadeslong trend of hyper-efficient supply chains, called JIT manufacturing, could be ending. But many companies say they will likely return inventories to pre-Covid levels when trading conditions normalize. As we point out in Chapter 12, holding large inventories ties up capital, requires extra space and people to manage it and needs to be insured. It is also a problem for companies selling products with a sell-by date. “Cost is still the driver for companies,” said a PwC exec.

Inventories can be problematic going into a demand shock like a pandemic. Companies like car makers and luxury-goods brands were left sitting on stockpiles they couldn’t use when demand collapsed last year. Drinks companies including Guinness maker Diageo and Anheuser-Busch InBev shared the cost of undrunk beer with their distributors to spare bars and restaurants from picking up the tab during lockdowns.

Other companies say they will likely go back to normalized inventory levels, but will change how they manage them. For instance, some multinationals plan to decentralize stocks to place them closer to customers, giving them localized stockpiles to dip into during supply-chain strain. Swiss drug giant Novartis is working to ensure each country it sells to has a second supply point for key products. “One thing we learned last year was to have strategic inventory in more places…decreasing the dependency on single locations,” said Novartis’ OM head.

Classroom discussion questions:

What are the strengths and weaknesses of JIT? (Hint: see Chapter 16 of your Heizer/Render/Munson text)
Why will many companies return to pre-Covid inventory policies?

OM in the News: Stockpiles of Personal Protective Equipment

Millions of masks. Pallets of disposable isolation gowns. Tons of gloves. Caught in bidding wars for medical supplies and forced to scour the globe for personal protective equipment when Covid-19 ripped through last year, hospitals are now sitting on stockpiles of gear, reports The Wall Street Journal (July 2, 2021).

How they got to this point is a mix of state policy, market forces and timing. The pandemic has forever shifted the way hospitals purchase supplies, requiring procurement departments to diversify their suppliers and become adept at understanding where raw materials are sourced. “There are some items that are going to take us 6-9 months to kind of wean down because we bought so much of it. And then, there’s items we might have for years,” said one hospital VP. “It will last us forever the amount of masks that we have.”

covid1

In New York State, hospitals are still bound by a 2020 requirement to maintain a 90-day stockpile of PPE equipment. The stockpile is calculated on a hospital’s height-of-the-pandemic usage, multiplied by 90 days. This “safety stock” (discussed in Chapter 12) is designed to keep hospitals from scrambling and again paying exorbitant costs for some items. During the 2020 surge, many hospitals were running with just days of surgical and N95 masks, disposable gowns, disposable thermometers, bleach wipes, hand soap, hand sanitizer, face shields, stethoscopes and body bags.

Now, however, the excess in supplies is partly due to contracts signed during the height of the pandemic. Manufacturers had to dramatically ramp-up production of some products. To enable that production, healthcare systems were required to sign very large, multiyear contracts. This represents a shift from a lean inventory approach where products are delivered as needed. By the time the manufacturing and supply chain caught up to the peak-Covid-19 demand, the daily burn rate on certain medical supplies started to drop.

Classroom discussion questions:

What are the advantages and disadvantages of the large safety stock set for PPE equipment?
What can a manager do to bring about a more rational and efficient inventory policy?

OM in the News: Too Much Toilet Paper

After a year in which toilet-tissue shortages left consumers scrambling for squares, sales are plummeting to below pre-pandemic levels. writes The Wall Street Journal (April 14, 2021). Recent sales fell more than 4% from the same period a year earlier, before the spread of Covid-19. The decline, which comes even though legions of Americans continue to work and attend school from home, indicates last year’s stockpiling is starting to have an effect on sales.

toilet paper

“You never knew when you weren’t going to be able to get it, so every time we went out we got some,” said one New Rochelle, N.Y. woman. “They just kept amassing.” She still has 54 rolls, stored in various places throughout her home: in a guest room, the back of a linen closet, the laundry room in the basement. (This is embarrassing–I just counted that my wife and I have 66 rolls in our closet and laundry room!)

Demand for toilet paper shot up in the outbreak’s initial weeks, doubling in the second week of March, and remained elevated throughout most of 2020. Americans spent more than $11 billion on toilet paper last year, up from $9 billion in a typical year.

A rush on other household staples, from disinfecting wipes to paper towels, led to equally or more-severe shortages of those products. But none triggered consumers’ anxieties as much as toilet paper. Walmart’s CEO, on a “Today Show” appearance in April 2020, urged consumers to stop buying so much toilet paper.

Tissue used in office bathrooms is generally built at different plants, and funneled through a different supply chain, than toilet paper sold to consumers at stores. So the sudden drop in demand for public-restroom quality tissue didn’t lead to a supply surplus of the higher-end stuff. Meantime, whereas companies were able to more quickly increase capacity for cleaning products, hand sanitizer and other in-demand items, doing so for toilet paper was less feasible given that making toilet paper in bulk requires 4-story-tall machinery that costs billions of dollars.

Classroom discussion questions:

Relate this article’s topic to our discussion of the “bullwhip effect” in Supp. 11 of your text.
How many of you also hoarded toilet paper last year?

Guest Post: Lobsters, Shrinkage, Process, and the Supply Chain

Our Guest Post today comes from Howard Weiss, Professor of Operations Management Emeritus at Temple University.

In Chapter 12’s discussion of inventory, your Heizer/Render/Munson textbook discusses shrinkage and notes that shrinkage is “inventory that is unaccounted for between receipt and time of sale, and occurs due to damage and theft as well as sloppy paperwork.” Shrinkage does not have to occur at any one particular facility but can occur at multiple points throughout the supply chain. A prime example of this is what happens with lobsters.

The usual steps in getting a live lobster from Maine to a restaurant are:
 Catch the lobster in a lobster trap
 Transfer the lobster to the to the ship’s storage well
 Transport the lobster to storage at the wharf
 Truck the lobsters to a dealer
 Transport the lobster to a restaurant
Shrinkage occurs because lobsters die as they move through the supply chain. Each 1% in shrinkage equates to a $5,000,000 loss in sales.

The goal of Process Analysis, as explained in Chapter 7, is to “continuously improve the process.” Currently, researchers at the University of Maine are doing just that by studying the above supply chain in order to try to reduce the time involved in any of the steps and determine which steps would give the greatest benefit if the time is reduced.

Of course, not all lobsters are shipped live and follow the steps above. Some lobsters are euthanized then sent to a processing plant where tails are separated from the rest of the lobster which is processed to produce raw lobster meat. In addition, during the pandemic some fisherman have resorted to selling the lobsters directly to local restaurants or consumers.

Classroom discussion questions:

What factors would be important when shipping live lobsters?
What Ch.7 process analysis tool would be most useful for improving the process?

OM in the News: Score One for Humans over Supply Chain Robots

Walmart has ended its effort to use roving robots in store aisles to keep track of its inventory, reversing a 5 year push to automate the task with the hulking machines after finding during the coronavirus pandemic that humans can help get similar results.

The retail giant has ended its contract with robotics company Bossa Nova Robotics, with which it joined to add 500 six-foot-tall inventory-scanning machines to stores. Walmart had hoped the technology could help reduce labor costs and increase sales by making sure products are kept in stock, reports The Wall Street Journal (Nov. 3, 2020).

A robot rolled through aisles at a Natrona Heights, Pa., Walmart

Walmart ended the partnership because it found different, sometimes simpler solutions that proved just as useful. As more shoppers flock to online delivery and pickup because of Covid-19 concerns, Walmart has more workers walking the aisles frequently to collect online orders, gleaning new data on inventory problems. It is pursuing ways to use those workers to monitor product amounts and locations, as well as other automation technology.

In addition, Walmart has concerns about how shoppers react to seeing a robot working in a store. It said earlier this year that the Bossa Nova robots would be in 1,000 of its 4,700 U.S. stores, bringing more automation to stores, characterizing the machines as robot “sidekicks” for store workers. (Bossa Nova laid off 50% of its staff after the contract with Walmart ended). Walmart does continue to use other robots in stores, such as floor scrubbers that move through aisles alone.

Classroom discussion questions:

In Ch. 7, we discuss “Technology in Services.” Walmart discontinued the Bossa Nova model, but what technologies does it still depend on in its stores?
What were the strengths and weaknesses of the Bossa Nova robots?

OM in the News: Fighting Pandemic Stockouts

Plenty of retailers and supply chains are still suffering from stockouts. From cleaning products, to kettlebells, to appliances, to meat, retailers, manufacturers and suppliers are coming up short. Forecasts need fixing in a period of severe economic upheaval such as a pandemic–and this article in Supply Chain Dive (Sept. 8, 2020), has 4 ideas for making the changes.

Supply chain managers should plan more often. Companies normally planning on a monthly cycle should switch to every 2 weeks; those on a 2-week cycle should shift to weekly. As demands related to coronavirus mash up with those of the upcoming holiday season, it is critical to have more data points and more sophisticated methods around demand planning to account for some of that volatility and surprises.
Focus on core products and customers. Companies can learn from how home improvement retailers operate during natural disasters. Instead of trying to keep everything in stock, they focus on the most in-demand items. Several large brands and retailers have employed the core product tactic during the pandemic, cutting back SKUs and, in some cases, entire product lines.
Shift more manufacturing to the U.S. A domestic U.S. industrial company with 2-3 factories with 4-5 distribution centers has a lot more ability to flex up and add shifts, even with the new social distancing and safety measures that are required because of COVID.
Give something new a shot. If items are in short supply, and not coming back on board anytime soon, companies can try a new brand or a new product — maybe one they have considered bringing in. Those items may be easier to get, and customers are more likely to be receptive to having an alternative option rather than nothing at all.

Classroom discussion questions:

Which of these would be most critical to a sports equipment manufacturer today?
How must forecast methods change?

OM in the News: Wrestling With Unsold Clothing Inventory

A new French law is forcing industry giants to donate or recycle unsold goods that they would have otherwise destroyed.

Apparel companies, from elite fashion houses to mass-market chains, are saddled with an inventory glut following months long closures during the pandemic. Now, they are trying to get rid of the excess without angering waste-conscious consumers—or harming their brands, reports The Wall Street Journal (Aug. 14. 2020). In the U.S., brands and retailers locked out of an entire fashion season are flooding charities with unsold products, in addition to sending goods to discount stores and liquidators.

Good360, a nonprofit that collects excess merchandise and distributes it to charities, expects more than $660 million in donations for the entire year, double what it received last year. “Brands don’t want their unsold products winding up at flea markets or on Craigslist,” said the CEO of Good360.

LVMH—which owns Louis Vuitton, Dior and other brands—booked a $200 million write-down on its inventories for the first half of the year, because many products destined for the spring/summer fashion season were ordered just before much of the West went into lockdown.

Big retailers sometimes destroy returned products rather than deal with the cost of trying to resell or even give them away. Brands that destroy unsold goods have sparked outrage from consumers, politicians and environmental groups. French businesses destroyed $700 million in unsold goods in the most recent year with available data– six times more than they donated. But high-end fashion companies fear angering clientele who would spend thousands on a designer dress or bag, only to see the same item a year later at a discount store selling for a fraction of the price.

Classroom discussion questions:

Why does French policy differ from that in the U.S?
How is the EOQ model (see Ch. 12 in your Heizer/Render/Munson OM text) impacted by the coronavirus?

OM in the News: A Forecasting Nightmare for Farmers

In early July, S. Carolina farmer Jeremy Storey dropped off an order of eggs at a restaurant’s back door as planned and continued on his way. But 6 hours later, he got a call that the eggs were never collected — the restaurant had suddenly closed because a staff member tested positive for Covid-19, and nobody canceled the order. After half a day in the hot sun, the eggs could no longer be eaten. “Half the restaurants we’re going to now, we find out upon delivering to them that they’re closed,” he said. He’s now sitting on a surplus of about 24,000 eggs, with no idea when, or if, things will stabilize.

The unpredictability is a major problem for farmers. If they can’t forecast what demand for eggs (and other products) will look like tomorrow, much less months out, they run the risk of overproducing — which would leave them with expensive surpluses — or underproducing, which would prevent them from having enough product on hand to meet demand.

Now, just as restaurants began to resume dine-in service, a new surge of coronavirus cases has paused reopening plans and put farmers back in limbo — and made it even more difficult to forecast. Planning is essential to farmers because they have to anticipate their customers’ demand months, and sometimes years, ahead of when they deliver so that they have enough time to grow crops or raise animals, writes CNN Business (July 16,2020).

Uncertainty “is really what’s causing the problem,” said a union exec. “There’s no end in sight. That makes it “really hard to plan for the future.” If the uncertainty drags out for another year or two, he said, some farms and restaurants will go out of business. It also means that some restaurants that make it through this dark period won’t have a steady source of supply at the other end.

Classroom discussion questions:

1 Should demand during the pandemic be excluded from future time-series forecasts?

2. With so much uncertainty, is it better to raise or lower production for the next agricultural cycle?

OM in the News: Why the Consumer Has Fewer Choices–Maybe for Good

Consumer-oriented companies spent the past decades trying to please just about everyone, as we discuss in Chapter 7’s treatment of mass customization. The pandemic made that impossible, and now some no longer plan to try. Sellers of potato chips, cars, meals and more have been narrowing offerings since the coronavirus snarled supply chains and coaxed consumers back to familiar brands, writes The Wall Street Journal (June 27-28, 2020).

Some IGA grocery stores now offer only 4 choices of toilet paper. “We may not need 40 different choices of toilet paper.” says IGA’s CEO. Georgia-Pacific switched all production of its Quilted Northern toilet paper to 328-sheet rolls; it had been also producing the brand in 164-sheet rolls. It plans to stick with the bigger rolls even after the pandemic, which let it speed production and make distribution more efficient. Retailers also had an easier time keeping Northern toilet paper in stock by having fewer varieties on shelves.

In grocery stores, the average number of SKUs was down 7% over the past month, with some categories, such as baby care, bakery and meat, down 30%. Frito-Lay, featured in Chapter 13’s Global Company Profile, stopped producing 1/5 of its products. Over the past 45 years, Lay’s has gone to 60 varieties of chips from 4. Since 1984, Campbell Soup has quadrupled the types of soup it sells to about 400.

Those efforts helped consumer-goods makers claim more shelf space as supermarkets expanded into big-box stores. In 2018, the average U.S. food retailer stocked 33,000 different items, compared with 9,000 SKUs in 1975, But now food makers have cut back on options, streamlined supply chains and concentrated production on the most-demanded goods.

Darden Restaurants said it was going to largely keep slimmed-down menus it started during the pandemic, which have helped reduce prep work and costs. And while last year, auto makers offered more than 605,000 vehicle configurations (even before taking different colors into account), showrooms today offer choices more limited because of supply-chain bottlenecks and lower volumes.

Classroom discussion questions:
1. What are the advantages of stocking fewer SKUs?

2. Why is this a supply chain issue (see Ch. 11)?

OM in the News: Storing Fuel at Sea

The cost to ship gasoline, diesel and jet fuel around the world has soared to record highs, as traders look to dodge the commodity price crash by stashing refined oil at sea. The coronavirus lockdowns deterred activities like driving and flying that involve burning fuel. The resultant glut of oil sent prices into a tailspin. But with so much extra supply, the price to store or move oil products has moved in the opposite direction. The lack of on-land storage, surplus of supply and collapse of demand globally means the oil is on the water, writes The Wall Street Journal (May 3, 2020).

It now costs about $170,000 a day to charter a vessel from the Persian Gulf to Japan, 10 times the March 2020 rate of $17,000. Traders can make money storing cheap oil today and cashing in on it later. That creates more demand for tankers as traders are motivated to keep oil at sea, especially with almost nowhere to store it on land. Some vessels moving oil from Asia to Europe are skipping the Suez Canal and taking the long route around Africa for this reason.

Refiners, which distill thick crude oil into usable fuels, haven’t cut output fast enough to stop a surge in supply. So global stockpiles of petroleum products will grow by around 550 million barrels in the second quarter. A race is under way to store the surplus gasoline, diesel and jet fuel at sea. The number of available “clean tankers,” smaller ships that move refined petroleum products, has plummeted. “Dirty tankers” transport unrefined crude, and there are very few of these vessels left.

Logistical difficulties at ports pose further constraints. Tankers are taking longer to unload because there is so little free storage space on land. Coronavirus quarantine measures have added to delays. Bottlenecks are everywhere.

Classroom discussion questions:

What is the solution?
How has the U.S. benefitted form the oil glut? Been hurt?

OM in the News: Ships Turn Into Floating Storage Units

Shippers are warehousing fuel on the high seas as the coronavirus epidemic cuts China’s demand for fuel.

A new glut of oil and gas is emerging, floating at sea, as the coronavirus epidemic cuts China’s appetite for fuel and hampers work at Chinese ports. Dozens of ships are acting as floating storage vats for oil and liquefied natural gas because the owners of the fuel are unable to find buyers or places to store their cargo on land, according to The Wall Street Journal (March 4, 2020). Some 79 vessels are now storing crude oil at sea.

Traders. in the past decade, often loaded up ships with crude oil or gas with no immediate intention of moving the cargo around the world, seeking to profit by buying fuel on the cheap and locking in a higher price in the future. Such hedging made supertankers a modern version of an inventory warehouse. But the current situation is different for the 87 million barrels of crude stored on the high seas today. Rather than getting paid to store oil and gas in ships, many traders simply can’t find a home for their cargo. So storing oil at sea comes with costs for traders and owners.

A similar story is unfolding in the gas market: Eleven ships are currently storing LNG at sea. Traders typically load up ships in the fall to take advantage of rising demand and higher gas prices when temperatures drop in December. Stored at minus-261 degrees, some LNG evaporates while at sea, which means owners are loath to store gas in vessels unless they can profit from it. “Everything that’s floating is probably distressed,” said an industry expert. “It’s something that’s trying to find a home. It’s floating until it can find storage.”

Classroom discussion questions:

What are the pluses and minuses of this hedging?
In Chapter 12 of your Heizer/Render/Munson OM text, we list the 4 functions of inventory. Which of these apply here?

Guest Post: Student Perspectives on the MyOMLab Inventory Management Simulation

Wende Huehn-Brown is Professor of Supply Chain Management at St. Petersburg College in Florida. She continues her review of our five OM simulations.

In prior guest posts, I evaluated 3 of the 5 simulations that are available free in MyOMLab with the Heizer/Render/Munson text. Today, I look at the Inventory Management simulation. I like that it deals with the retail industry, from the store manager perspective, because students feel more comfortable thinking about the physical needs of products in a retail scenario. The simulation quickly takes them from that initial comfort level as they get calls, emails, etc. about issues to manage decisions. Finding that balance between too much and too little inventory to achieve profitability goals is key in this simulation, just as in many real businesses.

This simulation requires students to apply holding and ordering costs, as well as watch for sales trends and think about forecasting orders. Many students often buy too much or too little until they start to think about EOQ and ROP to find a rhythm. They also see how their decisions impact profits as they work toward a $1 million goal. While difficult, students often say it is the best of the 5 MyOMLab simulations. Some even use the word fun!

Why? Because they feel the practical aspect of a simulation experiencing the needs and issues in these kinds of positions, with a chance to practice and not impact actual money. Inventory is always a delicate balance to keep customers happy and align to profit goals. Students often do this simulation more than once to challenge themselves to get the best results–building pride and confidence in making these managerial decisions.

Many students have work experiences in retail or hospitality and easily relate to this simulation. For example, this product does not perish as food items, so the cost of having too much inventory is a bigger challenge for them. Others find the simulation helps to refresh their skills or builds on past experiences to further learn some key skills employers need. Be sure to include these simulations in your lessons!

Guest Post: How Machine Learning Can Heal a Supply Chain

Our Guest Post today comes from Polly Mitchell-Guthrie, who is VP, Industry Outreach and Thought Leadership, at Kinaxis.

Machine learning has great potential to improve supply chains. So at my company, Kinaxis, when analysis of data from a major customer revealed that 55% of their lead times were wrong as designed, we began applying machine learning.

Lead times matter because overly optimistic planning assumptions mean supplies are expected to arrive sooner than they actually do. Waiting delays production and on-time customer delivery while building up parts that arrived on time but cannot be used until remaining parts needed arrive. Overly pessimistic planning assumptions mean actual lead times shorter than planned, so some parts arrive early, building up inventory and storage costs, while others are still in transit. If demand is slower than expected, parts accrue in inventory, unused due to obsolete needs.

More accurate planned lead times allow on-time customer orders, minimize inventory, and reduce buffer stocks necessary to ensure production. Predicting lead times is a problem well-suited to machine learning and automation. The planner sets tolerances for variations in lead times, which we use to configure processing rules for what actions to take. Our machine learning models use historical data to predict actual lead times, compare them to designed lead times, and then use the processing rules to improve decisions, leading to more realistic results.

We have taken a similar approach to predicting yield times. The results from these projects can be significant – for one company we were able to save $17 million in late revenues for their North American region over their 6 month planning horizon.

Minor deviations not worth the time to analyze but deemed worthy of a change are automatically accepted by the model, thereby “self-healing” the deviation. Those with a significant enough impact are flagged for manual review. Minor deviations with minimal impact are simply ignored by the processing rules. Planners can focus on decisions that matter most and let math automatically handle those that do not.

Here is a link to a longer version of the article I published in Analytics.