The main purpose of having Inventory is to buy time. If a customer expects immediate shipment when they order a product, and it takes more than a few hours to make that product, finished goods inventory will bridge the difference in time to match supply to demand. Similarly, when a manufacturing line needs a component, an on-hand supply of that component makes it immediately available, keeping the line running instead of waiting to procure the parts from the supplier.
Inventory can also be a buffer that compensates for the things we don’t know (forecast error, for example), and the things we can’t control – things like late receipt of materials, unexpected machine breakdowns or higher-than-expected scrap. Without some kind of a buffer, variability can cause stock-outs that disrupt production, disappoint customers, and erode profit margins. A little extra inventory can go a long way toward preventing the disruption – you won’t have to wait for a replacement if it’s already on hand.
Technology can replace inventory, or at least reduce the need for inventory, to “buy” time to keep the plant operating and keep customers happy. Technology can also reduce the risk of unpleasant surprises and provide earlier warning of impending disruptions so there is more time to take preventive or compensating measures. The primary way that technology contributes is through increased visibility.
Imagine a case where customers expect immediate shipment of a product that takes two weeks to build. You would need to keep two weeks’ supply of the finished goods on hand, plus some extra for demand variation. In addition, if demand changes radically, either up or down, it would take at least 2 weeks to adjust production to match the change. And if the product is suddenly obsolete (it happens!), you’re stuck with a considerable amount of obsolete product and partially completed product in-process.
If you could reduce the lead time from two weeks to one week, it would greatly reduce the amount of inventory needed as well as lower the risks posed by a large change in demand. Automation and in-plant technology including Industrial Internet of Things (IIoT) sensors, modern Manufacturing Execution Systems (MES), robotics and smart equipment controllers are all significant contributors to manufacturers’ efforts to shorten production lead time. Also consider the impact of IIoT and location-aware technologies in providing detailed information on the status and location of incoming parts and materials, inventory status in remote warehouses and shipments en-route, and near real-time demand information that feeds more accurate forecasts and distribution plans. Together, these technologies can shrink time and help us make supply chains more efficient, more responsive, and more profitable.
IIoT and related technologies are just beginning to have an impact on supply chains that will continue to expand at geometric rates, changing the landscape of manufacturing, distribution and supply chains throughout the globe. Eventually, these industrial technologies will integrate with “smart” homes, cities and infrastructure components (airports, railroads, highways, utilities) to multiply the efficiencies and tie the supply chain even closer to customers and suppliers.