Design for Supply Chain: Inventory Calculators
Sixty to eighty percent of all costs are locked-in during the design phase.
Are you considering the supply chain impacts of your product designs, or do inventory, manufacturing, and transportation costs come back to bite you? Most design for supply chain (DFSC) decisions slow to a crawl as companies struggle to quantify the costs and benefits of the various alternatives. There’s a better way. Leading organizations use “rough-cut” techniques rapidly trade-off important cost and benefits like material, inventory, manufacturing, distribution, and lost sales costs. The reason? Decisions come up constantly, and there isn’t always time to collect the data you need to complete a detailed analysis.
The principles of effective design for supply chain are to:
- Utilize cross-functional teams
- Capture intangibles through a qualitative assessment
- Quantify what you can using rapid analysis techniques
- Perform sensitivity analyses on your assumptions
These web pages provide you with several very effective rapid analysis techniques.
The Role of Inventory Calculators
One of the most common trade-offs that design teams make is:
“Should I pay $X more per unit in material costs to enable future inventory reductions through
(commonality, postponement, shorter supplier lead times, etc.)?”
Design teams find this question difficult to answer because they don’t always have experience in quantifying the drivers of inventory. No problem. These web-calculators capture the drivers.
The calculators:
- Don’t require a lot of data
- Help you quantify the inventory benefits of things like increased part commonality or decreased supplier lead times
- Give you answers in $/unit so you can make direct trade-offs against material and assembly costs
Each of the three calculator pages are described below. Click on the button that best describes the decision you’re facing.
Inventory vs. Material Costs
Quickly decide whether the relative costs justify any further analysis
When you are making trade-offs that impact inventory, you first need to understand the relative importance of inventory costs and material costs. As a way of estimating the size of the opportunity, you might ask questions about the extremes.
For example:
- If you could eliminate all inventory, how much more would you be willing to pay in material costs?
- If you could save $X/unit in material costs, how much more inventory could you afford to stock?
Inventory vs. Material Costs
Quickly decide whether the relative costs justify any further analysis
Inventory vs. Material Costs
Quickly decide whether the relative costs justify any further analysis
One approach for reducing inventory levels while maintaining end-product variety is to use common parts and subsystems.
Another approach for reducing inventory levels is to select suppliers that have short and reliable lead times, frequent deliveries, and low defect rates.
Commonality reduces inventory, because the forecast error for aggregate demand is lower than that of individual-item demand.
With high performance suppliers, you don’t need to carry as much inventory in-between deliveries or to buffer their uncertainty.