Welcome to the latest instalment of Argentus’ Executive Interview series, where we speak with thought leaders from all across the supply chain industry in Canada. We’re interested in tackling contemporary supply chain issues from all corners of the discipline – whether it’s public sector procurement, operations, leadership, strategic sourcing or others, to use a few recent examples.
For the latest in our interview series, we’re diving deep on inventory. Managing inventory is a key driver of supply chain success for any company that manufactures a physical product, or buys and ships finished goods. Its a true cornerstone of supply chain management, with a deep history going back to the days of Henry Ford. It’s also something that can cause major headaches.
So how do companies make their inventory more strategic? How do they reduce cost, while avoiding opening themselves up to risk? What are the best systems and methodologies to achieve inventory goals, and how do you go about effectively implementing them, anyway?
We were thrilled for the opportunity to speak with Roberta McPhail on these issues. Roberta is a former Director of Supply Chain who has continued to develop her career as a leader and instructor within APICS/ASCM, as well as a consultant to manufacturers and other organizations.
Our conversation covered:
- The main challenges companies face in building effective inventory strategies
- How inventory needs and strategies have changed as a result of COVID-19
- The benefits of DDMRP (Demand Driven Materials Requirements Planning), and
- How talent and organizational alignment fit into the picture.
Among other topics.
We hope you enjoy the interview!
You’re a 30 year Supply Chain veteran. Can you start by giving a brief, high level background of your history in Supply Chain?
I originally went to the British Columbia Institute of Technology. I took Engineering Tech and got a summer job, from which I got a foothold in a steel manufacturing company as a quality technician. I was there for 25 years, and worked my way up from an entry-level technician to Director of Supply Chain. That let me cut my teeth, and I learned the basics of everything from ERP to tech, to manufacturing systems, quality, and everything else. In that time, I did pretty much every function: quality, manufacturing supervision, planning and scheduling, which morphed to IT and ERP systems. I grew my career as a tech head, and found myself back in a leadership role within supply chain. For the last 10 years of my time there, I worked in materials management, supply chain management, planning, and S&OP.
After that, we parted ways, and I worked on a little bit of contract work, and then I finally landed on the decision that I needed to work for myself, and that’s what I’m doing now. I’m an instructor for APICS ASCM, and run administration for the chapter here in Vancouver. I’m also involved in semi-full time contract work for a U.S. Consulting firm where I implement inventory systems around DDMRP (Demand-Driven Material Requirement Planning). What has happened (that is new) in the last 6 months is I’ve been doing some management coaching on the supply chain side, doing leadership coaching, process improvement, and a little bit of ERP – they can bring me in and basically buy 30 years of experience.
In our previous conversations, you’ve mentioned that “inventory is the secret sauce” when it comes to supply chain – which was a great way of putting it. So we’d like to dive deep with inventory. What have been the traditional challenges with companies setting their inventory strategy?
The basic objective is this: get the right stuff, at the right time, at the right place, at the right cost. If you’re a manufacturing company that has raw materials, intermediate or finished goods, or a company that buys and resells, you can’t run with no inventory. You can’t run with a crazy high level of inventory. The question is, what is the right amount of inventory?
Out of this question, various methodologies have emerged. 10 different consultants will give 10 different answers to this question. The software industry has some standard methodologies. Some of them work. Some of them don’t work. Some of them can work. A common historical system is MRP. Lean methodology has emerged which talked about pull inventory and Kanbans, and I give the people who evolved that a lot of credit.
For the past 10 years there’s been a conflict between traditional systems and those new systems. You would much rather run your inventory on an ERP system than a spreadsheet. Out of that, companies ask, how do we set up our inventory? Do we forecast it? Do we use historicals? This is all part of the soup. Lean specialists say (Don’t shoot me), “that doesn’t work. We’re going to make and buy exactly what we need, exactly when, and do it on a visual system.”
Traditionally, those worlds have not aligned. What’s so exciting about DDMRP (Demand-Driven Material Requirement Planning) is that it aligns these two approaches. There are over 30 software packages that are built in or bolt-on that are certified in this methodology, and there are thousands of companies in the world doing this. DDMRP comes along and sets a colour coded system for managing inventory. It’s the best of Lean, but it’s able to dynamically change. It replenishes only on actual demand, but not the forecast. It’s pull based.
I will go in and say, “you can lower your inventory by 10-50%”, and lots of companies won’t believe it. But many of the bigger companies have gotten there. This why they implement this stuff.
What issues do companies commonly have with setting their inventory strategies, and what are the big barriers to change that you tend to see?
People tend to have a problem with an adoption of new methodologies and technologies, as well as finding the people who understand those methodologies and technologies in the first place.
My opinion is that companies have delegated the inventory function too low within the organization. They haven’t elevated it to reflect the importance of the complete supply chain – which is the complete end-to-end processes – and instead have left it subsectioned into different functions. You’re seeing Chief Supply Chain Officers start to happen. Some companies are elevating the function and giving it a seat at the C-suite level, and if not that, Director level. Supply chain has to be a high level decision.
This needs to happen before you can have that discussion about inventory. Here’s an example: I’ll visit an organization and say, “show me your inventory.” After they do, I ask, “are you happy?” Maybe 1/3rd are happy, and 2/3rds are unhappy. I’ll ask, “why?” That’s where I hear all the root cause issues. A classic one is that the forecast is no good. Or companies feel they don’t have time to manage it properly. Or their ERP system and data is screwed up.
The problem is that the person responsible for inventory is too low in the organization, so they can’t really manage change. If I’m a manufacturing company I think, if this is so important, why haven’t I given it its due?
Do you think more companies are running into issues especially as a result of COVID-19 challenges?
With COVID-19, people got leaned out on their supply chain inventories. This has led to a major re-evaluation. The whole issue of global risk management is related to inventory. Inventory is your risk buffer. It’s no longer just about cost and pushing your inventory down to the lowest possible levels. It’s now about deciding to push it up, but in the right places, to manage risk.
Companies are aiming to use something with more dynamic rules, and strategize their complete supply chain end-to-end. With the demand-driven process we map and flow everything. If a company doesn’t have that end-to-end discussion around strategy and risk, and if they move it down, they end up in the situation where there’s this poor person responsible for inventory who’s given no guidance, and using a spreadsheet even though the company has an ERP system, and we wonder why we have problems.
From your perspective, how does talent and skills play into this picture?
From a talent point of view, data analytics is huge. I’m biased, but I would recommend individuals get a professional designation, either through Supply Chain Canada or APICS ASCM. Even if you have a master’s degree, get one. You need an academic basis on how this stuff works.
You have to know how to move data in and out of Excel. You can get some basic programming skills, such as visual basic or SQL queries. You’re going to need to have some ERP knowledge. It’s not just knowing how to use the ERP system, it’s how to leverage it.
Project management is also very good. PMP is very good, or CAPM which is their junior designation. That’s excellent for going into a leadership role. The other useful one is PROSCI, which is a change management certification, useful for the quality world. ASQ has great lean programs.
When you look at it from a leadership perspective, there are three pillars: people, processes, and technology. For people, I would recommend training. For processes, it’s all about finding opportunity to fix the areas that are broken. For technology – I’m absolutely fanatical about supply chain knowing enough to challenge IT. You should be able to tell IT what you want. I’m all about empowering people to challenge IT, and empowering the supply chain function. Companies aren’t always enabling them to be a process supporter. That’s part of the root cause – we’ve spent $250,000 on an ERP system, and the original people who implemented it are gone, and the new hires were given a two hour training. How do we improve it? Leadership’s role is to enable that process.
A big thanks to Roberta for taking the time to do this interview! To learn more about Roberta McPhail’s consulting and education services, please head over to her LinkedIn page.