Setting your Plant Up To Succeed Starts Upstream

In our work serving the middle market food & beverage manufacturing industry, we often are brought into situations where C-suite leaders are frustrated with their plant’s poor performance.

More often than not, the Plant Manager is on the hot seat. In the last year alone, we’ve fielded 10+ inquiries to fill Interim Plant Manager roles.

While the Plant Manager is commonly blamed, deeper issues frequently lie upstream, with poor supply chain processes and/or decisions that handicap the factory before the day even begins.

Our guidance to clients experiencing poor plant performance is as follows: you might have a Plant Manager problem, but more likely than not upstream supply chain processes are making it extremely hard for your plant (and your Plant Manager) to be successful.

Fire-fighting as a business model

In fact, it is an exception to find a middle market food & beverage manufacturer whose daily existence does not involve jumping from fighting one fire to the next. Here are some operational challenges we commonly see:

• Frequent schedule changes, usually due to missing inputs or last minute changes in customer orders
• High levels of downtime caused by ‘waiting on materials’
• Heavy use of expedited freight to try to minimize downtime
• Difficulty locating materials in the warehouse
• Inventory is picked out of sequence, increasing the risk of obsolete inventory
• Reliance on trailers and offsite warehouses to store inventory
• Inability to trust what its ERP system says is in inventory
• Periodic large inventory write-offs
• Low on-time-in-full delivery rates, high late fees and frustrated customers
• High stress, from the shop floor to the Board room

The Real Problem: Inventory by Accident, Not by Design

In these instances, the biggest drivers of the company’s challenges generally come from poor upstream supply chain practices, including:

• Inaccurate or outdated master data: Lead times, lot sizes, and supplier capabilities are incorrect in its ERP, making planning assumptions faulty from the start
• Undefined or inappropriate min/max levels and reorder points: Without formal safety stock or reorder triggers, planners either over-order or wait until it is too late
• Customers are not held to lead-time requirements
• Supplier MOQs do not match business needs
• Poor cycle counting discipline
• Inadequate visibility into aggregate spending
• Insufficient demand planning and forecasting
• Siloed planning: Sales and Operations do not maintain a regular cadence for aligning supply and demand
• The business treats everything with equal urgency instead of focusing on high-impact SKUs (no formal ABC/XYZ inventory segmentation)

What to do about it?

If any of these issues sound familiar, your business would benefit from upgrading your inventory management processes. We recommend the following tips to improve your inventory control.

1. Create or update your inventory strategy: Start by setting inventory targets by item or item type based on usage, shelf-life, supplier MOQs, transport, lead-times, space and cost-to-carry; explore utilizing suppliers to own and manage inventory on your behalf.
2. Fix the master data: Next, proceed to a one-time cleansing project, then put controls in place to keep lead times, pack sizes, and item status accurate. Dirty data makes smart planning impossible.
3. Rebuild min/max and reorder points: Use historic usage, lead times and desired service levels to define reorder points and safety stocks; don’t let finance define it for you.
4. Implement ABC/XYZ analysis: Use ABC (value) and XYZ (predictability) segmentation to focus attention on high-value, high-volatility items. This allows smarter stocking approaches.
5. Invest resources to improve forecasting and planning: Show your customers how poor forecasting impacts your plant and reliability. Establish a monthly S&OP cadence, with real focus on operational planning. Importantly, the S&OP process should not just be a process by which the sales forecast dictates what gets made when – rather, the sales inputs and the operational impacts must interact.
6. Count, count, count: Inaccurate inventory creates problems throughout the system.

Benefits

Companies that fix inventory control and upstream planning see benefits across multiple metrics:

• Higher inventory turns without sacrificing fill rate
• Improved labor productivity
• Reclamation of warehouse space
• Improved on-time delivery
• Increased morale and reduced turnover in the plant
• Improved EBITDA and cash flow conversion