Inventory management (incl. Stockholding strategy)












Introduction

The stockholding strategy is a must in the transformation and a key element in the enablers for mature inventory management. Forecasting and S&OP are 2 other key areas detailed in their own playbooks.

A stockholding strategy will ensure an aligned approach between commercial, SC, production and purchasing to reach optimum level of stock to meet the defined service level to our customers.

1. Document objectives

This document pursues 3 objectives:

    • Get information on how to define a stockholding strategy
    • Understand the relationship of stockholding strategy with Archetypes & Service Levels
    • Get information on the P&I tool 

Defining the Stockholding strategy has 4 main impacts:

  • Optimize inventory level
  • Reduce Stockholding cost 
  • Improve service level
  • Reduce SMOG

2. Definition

A stockholding strategy is a combination of how you replenish your inventory and the optimum sizing of it.

It gives clear guidelines throughout the value chain and ensures consistency in the approach from the defined level of service for the customer to the approach for raw material procurement

There are 3 criteria to define the strategy:

  • Lead-times 
  • Service level
  • Demand Behavior

We distinguish 2 strategies:

  • MTS (Make-to-stock)/PTS (Purchase-to-stock) - A product is made(“M”)/Purchased(“P”) in advance before any committed orders come in. Inventory is always available for this product and for the service level defined.  A variation of this strategy is Make-to-Forecast (MTF).
  • MTO (Make-to-Order)/PTO (Purchase-to-order) - Standard products are not held in inventory but made(“M”)/Purchased(“P”) only after a committed order comes in. A variation of this strategy is Make-to-Order Full batch (MTO-FB)

3. Strategy definition principals

Lead-times are key in the definition of the strategy. An E2E vision is key to define stockholding strategy and areas of progress

Comparing The Catalog Lead Time (nbr of days indicated to customer between order intake and product availability for shipment) and total Replenishment Lead Time :

  • Catalog LT > Replenishment lead-time => Enough time to produce (& deliver) the material. No need for intermediate stock. Ok for a MTO strategy
  • Catalog LT < Replenishment lead-time => Need to build stock to ensure delivery on time => MTS

→ to have guidance on how to challenge stockholding strategy, click here

4. Strategy Project Approach

Stockholding strategy projects follow a 5-steps approach:

  • Introduce project and explain Lead-times concept (1 week) - Explain the approach, introduce the lead-time concepts and the data to collect
  • Collect data (2 weeks) - All necessary data to feed P&I including Archetypes at material level
  • Run P&I & prepare workshops (2 weeks) - Run P&I based on data collected and prepare workshop highlighting deviations
  • Workshop(s) (6 weeks) - Perform several workshops to go through to all Materials and validate strategy for each
  • Implementation (TBD) - Implement decisions taken and set lead-times and strategies in SAP

→ More details on each step here

→ More details on team set-up here

5. Governance and Performance Management




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