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Current challenges in inventory management

An interview on the topic

Estimated reading time: 10 minutes
What challenges does inventory management entail?

Inventory management is a complex task that brings with it numerous challenges. From proper inventory planning to monitoring stock levels and avoiding losses and waste, there are many factors that need to be taken into account.

We want to take a closer look at the new challenges in inventory optimization and have invited Mauritius Geiger for an interview. Mauritius Geiger is the Managing Director of fLUMINA GmbH, a provider of expert systems with artificial intelligence for digital twins and virtual assistance systems.

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What is inventory management?

Inventory management refers to the planning, control and monitoring of a company's stock of goods and raw materials. It is a key component of supply chain management and plays an important role in maintaining operational efficiency and customer satisfaction.

An effective inventory management strategy can help ensure the right amount of goods are available at the right place at the right time while minimizing storage costs. It involves using technology and tools to capture and analyze inventory data, automate ordering processes and minimize inventory risks.

Inventory management is also a continuous process that enables companies to make the right inventory management decisions to increase efficiency and profitability.

Warehouse planning in inventory management

Mr. Geiger, can you tell us what has changed as a result of the global crises in recent years and how companies can deal with them?

Mauritius Geiger:
The global crises of recent years have meant that companies have had to re-evaluate and adapt their inventory management. The pandemic has emphasized the importance of flexibility, data accuracy and transparency, as well as technology and automation in inventory management. Companies must be able to respond quickly to changing conditions, capture and analyze accurate data and invest in automated solutions to make their inventory processes more efficient and cost-effective.

From the company's point of view, it is desirable to have a foresight or forecast, i.e. a simulation. How will the order quantity behave in the event of growth or what would happen if critical suppliers were to disappear? Today, you also want to know which variants can be produced with the available material.

In addition, the entire supply chain has become increasingly complex (many triggers, data points, global networking, complex variants/products) and faster. There is a lack of overview and transparency of the relationships between the players.

Inventory management in the warehouse

What problems does inventory management entail? Storage costs, tied-up capital and discontinued models are all reasons for reducing stock levels, maintaining production and the ability to respond to customer requests for a buffer. Can you give us a brief insight?

Mauritius Geiger:
Safety stocks should be optimally adjusted with the aim of achieving high availability. It is time-consuming to process the entire order history in order to better understand which products have which consumption.

Grouping product families/material groups is difficult to implement in the ERP systems and these usually do not have nice dashboards with a time history of the stock situation.

Forecasting future requirements is often the biggest challenge because all parameters from sales (e.g. sales quantities per product/variant), production (e.g. throughput times, availability such as overall equipment effectiveness) and purchasing (e.g. who supplies what, delivery horizons and critical paths), including the current stock situation, have to be taken into account. Although this can be mapped in Excel, it is often complicated and ties up a lot of resources.

Warehouse planning in inventory management

What are the current challenges in managing inventories? What impact do replenishment times, delivery reliability and fluctuating consumption have? Can you please also address the issue of batch size and machine utilization in relation to storage?

Mauritius Geiger:
Knowing critical paths (especially according to replenishment times) is valuable. The difficulty lies in including all products and all variants - i.e. the entire product portfolio - in the analysis. How often are they actually included? This requires large amounts of data to be rolled out of the ERP.

In general, the aim of a factory is to achieve high flexibility, low circulating stocks, fast throughput times and high productivity. A large batch size increases these factors. In order to achieve this optimum, leveling/smoothing can be useful, for example. The entire product portfolio is taken into account, analyzed and a production quantity (batch size) is defined for each type/material. This creates a high level of transparency for all orders and clear prioritization. This method can be easily integrated into existing APS systems (advanced planning and scheduling systems). The result is transparency, calmness (smoothing and no or few fluctuations) and high adherence to schedules, which equates to customer satisfaction.

Imagine that you always have training sessions at a different time and on a different day. Leveling creates a training schedule and the factory begins to work in a harmonious cycle. Batch sizes, throughput times and work in progress can be reduced by up to 80%. With the help of IoT devices and analytics, the capacity utilization of the machines can also be determined and included in the analysis.

Inventory planning in inventory management

LEITWERK Consulting and fLUMINA had a joint workshop on inventory management with a focus on process optimization by LEITWERK Consulting and the tool-supported optimization of demand management by fLUMEN. Please tell us briefly what fLUMEN is and how you work in general.

Mauritius Geiger:
fLUMINA develops the fLUMEN software. fLUMEN is the digital image of the factory and primarily processes the master and transaction data from the ERP system. The software thus creates a digital twin of the production and manufacturing processes for purchasing, production, sales, warehousing and their logistical processes. With this automatically generated model, key figures, analyses, dashboards, simulations, reports, digital store floor management and the CO2 carbon footprint are generated at the touch of a button using automation and AI algorithms in a no-IT project.

The software works on all levels from the plant to the document item in an intuitive drill-down principle. With the drill-down principle, data analyses are deepened step by step by switching from a general overview to more detailed sub-views. Today, the fLUMEN software includes a large number of solutions and use cases in the fLUMINA Valuestore. The fLUMEN software solution is now complemented by the fLUMEN IoT dots for condition monitoring on systems and machines.

Explanation of the topic of inventory management

What is the approach to inventory optimization and which current technical systems, tools and/or methods are used?

Mauritius Geiger:
The procedure is simple and standardized up to a certain customer-specific point:

  1. Installation of fLUMEN with commissioning, data verification and basic configuration (3-5 days).
  2. Presentation and evaluation of the actual situation by means of graphics, dashboards and tabular mass evaluations of stocks, consumption quantities and capacities, throughput times, critical paths, adherence to delivery dates, order quantities and other interesting evaluations in order to obtain the best possible overall picture of the company's production and management strategy.
  3. Presentation of suggestions for the optimization of safety and warehouse stocks and for the general warehouse strategy for material and product groups.

This is where each company's individual journey in optimizing inventory and warehouse management/logistics begins.

Challenges with inventory in the warehouse

What challenges, but also problems, can arise with these approaches to inventory management?

Mauritius Geiger:
Automation harbors the risk that everything is left to the computer/algorithms and that there is no longer any human interaction and evaluation of the situation. Incorrect assumptions of the parameters can lead to incorrect stocks. This can be countered with a step-by-step approach by moving closer to the optimum.

The results of the analyses must be interpreted correctly and woven into the overall context/strategy of the company in order to derive an optimal decision. Data can support human opinion here and point out new approaches to solutions, but it is difficult to replace the creativity and associative ability of humans.

Defining the right material and product groups can be challenging. Resistance to computers and algorithms must be embedded in the social context and culture of the company.

Problems in inventory management

What are the short-term and long-term effects of the problems on inventory management? What are the risks for a company?

Mauritius Geiger:
What are the short-term and long-term effects of the problems on inventory management? What are the risks for a company?

fLUMEN in inventory management

So how can fLUMEN help to prevent risks and optimize inventory management?

Mauritius Geiger:
fLUMEN creates transparency in procurement for the entire product portfolio and all variants, which leads to improved planning and a planning horizon. This is possible because all existing data from purchasing, production, sales and logistics can be included.

This also generates knowledge about what the company can currently deliver with the available materials. With the computing power of an algorithm, significantly more scenarios can be covered and run through so that better decisions can be made.

Findings from the calculation of inventory planning

What insights have you gained from working with other companies? What weak points were identified with fLUMEN?

Mauritius Geiger:
By analyzing the operational processes, various findings and weaknesses were identified. There are significant deviations in throughput times, which are mainly due to incorrect scheduling parameters. The identification and determination of safety stock parameters is also of great importance in order to ensure a stable supply chain. The largest cost deviations were found in the contribution margins and profitability per product group and country, with production costs also playing a role. In order to optimize cash flow, missing parts must be identified and rectified as quickly as possible.

Systematic monitoring and control of processes is essential to ensure general transparency in the supply chain. Condition monitoring of capacities and utilization with the help of fLUMEN IoT sensors contributes to the efficient use of resources. Bottlenecks and critical paths must be identified to ensure smooth production. In addition, variant and portfolio management must be monitored in order to increase profitability. You can find more information on this topic at fLUMINA Valuestore.

Procedure for working with fLUMEN in inventory management

How does fLUMEN work? What are the procedures, what requirements must be met?

Mauritius Geiger:
The prerequisite is a virtual machine and a data extract from the ERP (preferably SAP). fLUMEN is a no-IT project. The effort for IT therefore amounts to a few hours.

The fLUMEN platform provides blueprints/templates. With little effort, these are individually adapted to companies. fLUMEN is an AI and expert system with numerous solutions in the fLUMINA Valuestore.

Our approach:

  1. Companies provide a virtual machine (VM) with powerful computing power. fLUMEN works on-premise. This means that it is sensitive company data over which the customer has absolute control at all times.
  2. The company then uploads the data extract from the ERP system in an automatic process. All data is processed in the fLUMEN VM. In principle, all available data sources from other systems/databases (time recording, MES, etc.) can be integrated.
  3. This is followed by commissioning and setting up the VM. This takes 3-5 days on average. In this step, the data is checked, a function check is carried out and the system is set up.
  4. Then you're ready to go - all use cases/solutions from the fLUMINA Valuestore are available at the touch of a button.

OUR CONCLUSION

The interview with Mauritius Geiger, Managing Director of fLUMINA, offers interesting insights into the challenges and opportunities of inventory management. In light of the global crises of recent years, it has become clear that companies need to adapt their inventory management and make it more flexible. The importance of accuracy, transparency and automation in data collection and analysis has been emphasized. An effective inventory management strategy enables companies to make the right inventory management decisions to increase efficiency and profitability.

Challenges in inventory management

A central problem in inventory management is the balance between warehousing costs, tied-up capital and maintaining production as well as the ability to respond to customer requests. fLUMINA emphasizes the need to optimally adjust safety stocks and enable better forecasting of requirements. The complexity of the supply chain and the increasing requirements for variants and products make it difficult to maintain an overview and transparency of the relationships between the players.

The current challenges in inventory management include coping with replenishment times, delivery reliability and fluctuating consumption. Batch sizes and machine utilization also play a role here. fLUMINA emphasizes the importance of analyzing large volumes of data from ERP systems in order to identify critical paths and optimization opportunities. By integrating fLUMEN, fLUMINA's software, into existing systems, transparency, peace of mind and a high level of adherence to deadlines can be achieved.

Cooperation between LEITWERK Consulting and fLUMINA

The collaboration between LEITWERK Consulting and fLUMINA has shown that fLUMEN can help prevent inventory management risks and optimize warehousing. The software enables improved planning, a wider range of scenarios and better decision-making by incorporating comprehensive data sets. In addition, fLUMEN can highlight best practices from successful companies.

Involvement of humans

It is important to note that human interaction and evaluation must not be neglected when automating and applying algorithms in inventory management. The results of the analyses must be interpreted professionally and embedded in the overall context of the company. The right material and product groups must be defined and possible resistance to computers and algorithms must be taken into account.

All in all, fLUMINA's fLUMEN solution helps companies to overcome the challenges of inventory management and enable optimal decision-making. By integrating technology and data analysis, companies can make their inventory processes more efficient and increase profitability.

We would like to thank our interview partner Mauritius Geiger from fLUMINA for his input!

Referent Mauritius Geiger

About Mauritius Geiger

Mauritius Geiger, the founder and Managing Director of fLUMINA GmbH, specializes in value stream mapping. fLUMINA GmbH sheds light on information, data and material flows in company processes. More than 10 years ago, Mauritius Geiger began drawing company processes by hand in order to create transparency about these processes. Back then, access to process data was time-consuming and complicated, but today digital twins and intelligent assistance systems enable a comprehensive analysis of the entire corporate landscape. fLUMINA GmbH aims to create an automatic value stream analysis from existing company data and thus gain valuable insights.

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Do you have questions about inventory management or are you interested in a consulting service?
Feel free to contact us!
LWC Consultant Melanie Schmid
+49 89 189 235 96
melanie.schmid@leitwerk-consulting.com
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