StrategyDriven Advisors led an assessment of a diverse utility’s nuclear (3 stations) and fossil (6 of 27 stations) generation business units’ inventory management practices focused on identifying opportunities to stop inventory growth, optimize inventory levels, minimize expediting costs, and eliminating spoilage and obsolescence losses while maintaining high parts availability.
Our advisors worked with senior utility executives, corporate supply chain directors and managers, and station leaders to identify work management, procurement, stocking logic, parts data, and ERP system issues. Our approach included rigorous inventory data analysis, direct work management and procurement process performance observations, reviews of process and metrics/goals documentation, and personnel interviews. Findings were compared with StrategyDriven’s utility industry process flowcharts, best practices, and benchmarks.
Our assessment identified 15 – 35 percent (based on business unit) inventory reduction opportunities. Specific near and long-term action recommendations were provided to utility supply chain leaders that within 18 months contributed to the halting of inventory expansion, reducing of expediting costs by up to 90 percent, and establishing a framework for long-term inventory reduction (through use and sale).
StrategyDriven’s inventory management and procurement process performance assessments provide organization leaders with information regarding the efficiency and effectiveness of day-to-day process execution. Our analyses exposes unnecessary and divergent activities, discontinuities in transaction and data flows and resource and time-dependent constraints; the elimination of which increases overall throughput and reduces costs.
StrategyDriven Process Flowcharts
Process Performance Analytics begin with an intimate understanding of the process to be assessed; its inputs, transactions, data flows, personnel and software interactions, and outputs. Equally important is the identification of process performer roles and supporting software application data collection, status changes, and interfaces.
StrategyDriven Process Flowcharts graphically present this information in a manner that enables rapid identification of unnecessary and divergent activities, transaction and data flow discontinuities, and performance measurement points critical to the determination of overall process efficiency and identification of constraints. Armed with this information, organization leaders focus their performance improvement efforts on those issues most impactful to overall performance.
StrategyDriven Inventory Management Assessment Example
Inventory Characterization Analysis
An optimized inventory is one that effectively balances the carrying, expediting, obsolescence, and expiration costs with ensuring items are available at the time of need. In short, optimized inventories minimize item cost while maximizing item availability.
StrategyDriven begins every inventory optimization analysis with a characterization evaluation of the subject organization’s existing inventory. Based on our extensive experience, this analysis identifies several common areas of unnecessarily low parts availability and high cost. Recognizing real-world operational constraints, we further divide these groups into those unavoidable ‘costs of doing business’ and ‘performance improvement opportunities.’
Total Inventory: Aggregate cost of all items maintained in inventory
Inventory Restocking: Cost of acquiring items below their recommended reorder point (based on item use rate, lead time, and safety stock level)
Cost of Doing Business Over Max Inventory: Inventory levels over the management defined maximum resulting from normal business operations. These include:
Temporary Over Max Inventory: Short lived excess inventory resulting from the acquisition of new items to replace those that were issued combined with the unexpected return of the issued item
High Economic Order Quantity Items Over Max Inventory: Short lived excess inventory deliberately incurred because of the economic savings of ordering large item quantities
Frequently Used, Long Lead Time Items Over Max Inventory: Short lived excess inventory incurred to reduce the stock-out risk of frequently used items having a relatively long (and therefore uncertain) lead time
Inventory Reduction Opportunities: Amount of over max inventory that can potentially be reduced over time through use, sale, or write-off (at such time that it becomes obsolete) including:
Late Item Ordering Over Max Inventory: Amount of over max inventory resulting from item ordering within the lead plus order processing time for short lead time items
High Reorder point Over Max Inventory: Amount of over max inventory resulting from high item reorder points
Note that Upward Pressure on Inventory Levels occurs because high item reorder points necessarily increase the minimum combined inventory level to be maintained.
Work Management Process Assessment
The work management process defines two of the key internal process parameters influencing inventory optimization. Work order approval establishes the specific items needed, their quantities, and represents when item demand originates. The scheduled work order execution date drives the timing associated with item availability.
StrategyDriven begins the work management process assessment with an evaluation of the process and supporting procedures against our best practices model. We further evaluate process execution roles and responsibilities, integrations, and technology supports.
StrategyDriven analyzes the work management process to determine the timing of work order approval (item ordering) and the several process inputs and parameters influencing this important milestone. Additionally, we evaluate work order execution schedule dates, their stability, and the several process parameters influencing this second milestone.
StrategyDriven then evaluates the accuracy of item ordering; whether the appropriate items were ordered in the necessary quantities. Further review of overall work order quality is performed if impacting schedule stability.
Activity Observations, Technology Reviews, and Personnel Interviews
Armed with data-identified process discontinuities and breaks, StrategyDriven Advisors observe activity performance and interview responsible personnel to identify the qualitative organizational, process, and technology issues challenging optimized work management process execution.
Collectively, analysis of these integrated process execution parameters yields the work management constraints and execution inefficiencies resulting in a suboptimized inventory.
Procurement Process Assessment
The procurement process resides at the heart of inventory optimization. Supply Chain personnel responsible for this process acquire the items demanded by the work management organization. This demand is satisfied by an issuance of a combination of ordered and stored items.
StrategyDriven begins the procurement process assessment with an evaluation of the process and supporting procedures against our best practices model. We further evaluate process execution roles and responsibilities, integrations, and technology supports.
StrategyDriven analyzes the procurement process to determine the amount of time required for purchase request, request for quote, purchase order, item receipt and issuance processing including the several process inputs and parameters influencing these activities.
StrategyDriven then evaluates item stocking logic, lead times and their accuracy. (See inventory characterization above.)
Activity Observations, Technology Reviews, and Personnel Interviews
Armed with data-identified process discontinuities and breaks, StrategyDriven Advisors observe activity performance and interview responsible personnel to identify the qualitative organizational, process, and technology issues challenging optimized procurement process execution.
Collectively, analysis of these integrated process execution parameters yields the procurement process constraints and execution inefficiencies resulting in a suboptimized inventory.
Integrated Work Management – Supply Chain Process Assessment
The Inventory Optimization assessment concludes with a Work Management – Supply Chain interface evaluation of all process parameters, interfaces, and constraints from the start of work order planning through item issuance to identify those organizational, program, and technology barriers to smooth process transactions.
Combining the collective results of the previously performed Work Management and Supply Chain process evaluations into and end-to-end functional analysis yields an integrated view of the overall inventory management process and a comprehensive set of performance improvement and inventory optimization opportunities.
StrategyDriven’s Asset Management Process Framework aligns with U.S. NRC regulatory requirements and INPO and NEI standards. Our framework includes specific asset management and process execution productivity data gathering points. Additionally, we incorporated industry best practices gained through first-hand experience working with dozens of nuclear and non-nuclear utilities over the past several decades.
Performance Measures Catalog
StrategyDriven’s catalog of electric power generation utility performance measures includes hundreds of metrics based on U.S. NRC, INPO, and NEI guidelines and industry best practices. Our systems are presented in a traditional vertically aligned, organizationally cascaded and NEI Standard Nuclear Performance Model sets and are complimented by best practice dashboard and metric style sheets.
Asset Management Best Practices Catalog
StrategyDriven’s inventory of hundreds of asset management program best practices supports a qualitative phase-by-phase assessment of work management process performance – making improvements in process execution readily identifiable and often easily implemented.
Quantitative Performance Diagnostic Toolset
StrategyDriven’s quantitative diagnostic toolset focuses on process compliance, targets common industry challenges, and identifies time-dependent execution constraints.
Time-dependent Process Execution Assessment
Schedule Change Request Analysis
Item Lead Time Constraints Determination
Item Delivery Lead Time Accuracy Analysis
Labor Resource Scheduling Analysis
Asset Management Maturity Toolset
Asset Management Maturity Model
StrategyDriven’s Asset Management Maturity Model enables a current state performance comparison across a spectrum of performance levels and industry norms for individual components of the work management program.
Time-to-Achieve Performance Analysis
Once a desired to-be performance level is identified, StrategyDriven’s analytical tools support identification of both cost and time to achieve this new end-state.
StrategyDriven Tactical Execution Forum
Strategy without execution is nothing more than wishful thinking pursued with hope. No organization achieves true success unless it is able to effectively execute its initiatives. It is only through execution that leadership’s strategic vision is married to reality.
“Execution is where the rubber meets the road.”
Focus of the Tactical Execution Forum
Execution is the life blood of successful organizations. Materials in the Tactical Execution Forum are dedicated to discussing the leading practices of companies that effectively execute their business initiatives and operations to the fulfillment of the organization’s strategic vision. StrategyDriven regularly publishes articles, podcasts, documents, and resources within the forum cover those topics critical to effective work management and execution.
Click here to visit the StrategyDriven Tactical Execution Forum.