Visible Optimisation of Inventory Management

Transcription

1 Visible Optimisation of Inventory Management Nebo John Kganyago, and Goodwell Muyengwa Abstract-- Managing the flow of information and coordination of resources in changing environment is often difficult and can lead to inefficient and ineffective inventory management practices. This paper seeks to understand the influence of supply chain visibility on the performance of inventory management in a dynamic environment. The research study used four constructs of supply chain visibility namely sensing, learning, coordinating integrating. The results from the study demonstrated that 42% of the variance in the performance of inventory management was explained by supply chain visibility for coordinating and integrating at a statistical confidence of 95%. The study could not establish the influence of sensing and learning visibility on the performance of inventory management. Keywords---Supply chain visibility for learning, coordinating, sensing and learning, inventory management. R I. INTRODUCTION EFERENCE, [1] proposed four supply chain visibility (SCV) as a key factors that can lead to re-configurability and competitive advantage in creating strategic value in dynamic environments. The four important measurable constructs of supply chain visibility are: 1) Visibility for sensing 2) Visibility for learning 3) Visibility for coordinating 4) Visibility for integrating). These constructs help to optimise inventory management. From literature common problems that result in to poor inventory management, : [1, 2, 3] are: (a) People put in charge of inventory distribution that either don t have enough experience, are neglectful in their job, or don t have adequate training. (b) Using a measure of performance that s too narrow. (c) A flawed or unrealistic business plan for a business for the future. (d) Not identifying shortages ahead of time. (e) Bottlenecks which can interfere with on time product delivery. (f) Bullwhip effect, this is an over-reaction by a company to changes in the market. (g) Too much distressed stock in inventory. (h) Excessive inventory in stock. (i) Computer assessment of inventory items for issue is inaccurate. Some of the problems highlighted above are common in Company A and contributes to a poor service delivery to the end user. These challenges can t be solved by focusing on Enterprise Resource Planning (ERP) solutions only but by focusing also on the decisions that are made by managers in the dynamic environment. Company A observed that end users were increasingly complaining about the poor service rendered by warehouse administrators and inventory investment kept on increasing. Management of cost and service delivery are key strategic components of Company A s competitiveness. It is therefore critical to focus on maximisation of current resources to improve management of inventory without acquiring additional costs. Supply chain visibility from dynamic capability view as proposed by [1], is suitable to support these key strategic components. Most of researches that have been done on supply chain visibility have primarily focussed on integrated information management system. Few researches have been done on the key strategic visibility required for managing inventory in a dynamic environment. Managing supply chain visibility from dynamic capability enables organisation to reconfigure resources with timeliness and efficiency in order to match the needs of changing environment, [1, 2]. This research aims to establish the relationship between constructs of supply chain visibility (SCV) and the The research will identify the constructs of SCV positively associated with the To the body of knowledge the research seeks to contribute on the understanding of the influence of supply chain visibility constructs on the management of inventory. II. RESEARCH OBJECTIVE The main objective of this study is to investigate the relationship between supply chain visibility constructs and the performance of inventory management in Company A. A. Hypotheses H a1 : Visibility for sensing is positively associated with the H a2 : Visibility for learning is positively associated with H a3 : Visibility for coordinating is positively associated with H a4 : Visibility for integrating is positively associated with B. Research Questions: 1). Is visibility for sensing positively associated with the performance of inventory management? 2). Is visibility for learning positively associated with the performance of inventory management? 3) Is visibility for coordinating positively associated with the performance of inventory management? 4) Is visibility for integrating positively associated with the performance of inventory management? 72

2 III. LITERATURE REVIEW A. Inventory Management Inventory management systems consist of policies, procedures and controls that monitors levels of inventory and determines what levels should be maintained, and when stock should be replenished, [1, 2]. The management of inventories concerns the flow to, within, and from the company and the balance between shortages and excesses in an uncertain environment [4]. The primary goal of inventory management has been to maximize a company's profitability by minimizing the cost tied up with inventory and at the same time meeting the customer service requirements, [5]. Reference 1 proposed supply chain visibility as a key factor leading to reconfigurability and competitive advantage and they identified four important measurable constructs of supply chain visibility: visibility for sensing, visibility for learning, visibility for coordinating and visibility for integrating. These constructs are the focal point of this research. Reference 1 deduced these constructs from dynamic capability developed by [2]. This research aims to explore if these measurable constructs of supply chain visibility are positively associated with the performance of inventory management system. Figure 1: bellow provides a structured view of the literature to be followed when reviewing the constructs of supply chain visibility. Fig. 1: Aspects of SCV B. Visibility for sensing Visibility for sensing is a process related to the understanding of the environment, the identification of market needs and opportunities, [6].. Sensing is an inherently entrepreneurial set of capabilities that involves exploring technological opportunities, probing markets, and listening to customers, along with scanning the other elements of the business ecosystem, [3]. The effectiveness of dynamic capability for sensing will be measured in order to determine if it positively influence the performance of inventory management system. Sensing will be measured through market orientation. Market orientation is a dynamic capability used to identify market deficiencies, sense change in customer demands and exploit market interruptions, [7]. Reference 8 highlighted four factors which influence the effectiveness of market orientation which directly impacts sensing: (i) Antecedents to market orientation;, (ii) Market orientation; (iii) Consequence of market orientation, (iv) Moderator variables. The effectiveness of sensing through the application of market orientation will be determined from antecedents and market orientation factors only. The antecedent factors that will be considered in this research include warehouse management factors, (communication, risk, educational level, and attitude ) Interdepartmental dynamics and organisational systems. C. Visibility for learning Learning is a process by which repetition and experimentation enable tasks to be performed better and quicker. The concepts of dynamic capabilities as a coordinative management process opens the door to the potential for inter organizational learning, [3].The effectiveness of dynamic capability of visibility for learning will be measured in order to determine if it is used to improve inventory management system. Measurement will be done through application of absorptive capacity. Absorptive capacity promotes organisational change by influencing the evolution of new functional competencies, [9]. Learning and the acquisition of knowledge can form the basis for an interactive process of exchanging the existing resources and developing the new competencies, [10]. According to reference [11], absorptive capacity is the firm s ability to identify, assimilate, and exploit knowledge from external environment. Reference [9], identified two components of absorptive capacity, that s potential absorptive capacity and realised absorptive capacity. These components will be used as variables to measure the effectiveness of absorptive capacity utilised in improving inventory management system. The effectiveness of these variables will demonstrate if dynamic capability for visibility of learning is used in improving inventory management system. D. Visibility for coordinating References, [12,13] proposed that the implementation of new configurations of functional competences lies in the effective coordination of a variety of tasks and resources and the synchronisation of different activities. Coordination is the act of managing interdependencies between activities performed to achieve a goal,[14].. The effectiveness of dynamic capability for visibility of coordinating will be measured through coordination capabilities. Coordination capability is effective when inventory management system is able to manage various interdependencies among activities and resources, [14]. Three forms of dependency that needs to be coordinated for inventory management system to be effective are prerequisite constraints, transfer, and usability. Coordination capability ensures that inventory management activities, procedures and reports fit together very well. E. Visibility for integrating Integrating capability is the capacity to embed new knowledge into the new operational capabilities by creating a shared understanding and collective sense, [13]. The 73

3 effectiveness of dynamic capability for visibility of knowledge integration will be measured through collective mind measurement scale. Collective mind is viewed as dynamic capability which allows groups to collectively shape their knowledge resources through heedful interactions into a new innovative set of functional competencies, [15]. Collective mind enables a mutual understanding on the importance of connected actions and subordination into a collective inventory management system..successful adaptive organisations are able to sustain a method of operation in which they detect relevant events, filter and make sense of these events in relation to their context, and initiate responses that are deemed appropriate, [16]. Collective mind supports this method of operation by reconciling the relationship between participants, team learning and speed to market and thereby optimise inventory management system. F. DOV Definition Of Victory The purpose of this document (DOV-Version 5), [17], is to provide guidelines on measurement and reporting on the DOV metrics and targets for Company A s supply chain strategy throughout Company A as an organisation. In order to track the progress that is made towards the achievement of Company A supply chain vision, key measurements applicable for the DOV should be tracked. One of the key areas covered in this document is inventory which includes the following attributes that measures the effectiveness of inventory management system: Inventory rand value vs. Target: To track how close the average yearly inventory rand value compares with the target (BU approved) inventory rand value. Stock accuracy: The percentage variance between physical inventory and perpetual inventory as per physical inventory counts for both quantity and value. Critical inventory availability: Tracks availability performance on critical inventory Inventory turns: Tracks the number of times stock is replenished in a year Inventory age analyses: To help track slow moving inventory as input to the actions to reduce redundant/obsolete inventory. IV. RESEARCH FINDINGS A. Data Analysis Table 1 shows the summary of respondents and their areas of responsibility within the supply chain management of Company A. TABLE I CATEGORY OF RESPONDENT ACCORDING TO THEIR AREAS OF RESPONSIBILITY: Area of responsibility Sample Responses Warehousing 17 43% 11 65% MRP controllers 14 35% 12 86% Supply and demand 7 18% 7 100% Supply chain analyst 2 5% 2 100% Total % The breakdown by the area of responsibility in Table 1 indicates that the MRP controllers and warehousing were more willing to contribute to this study and this could be fact that there are directly responsible for inventory management optimisation. B. Visibility for sensing Visibility for sensing was found to be more effective with the material requirement planning, (MRP) and supply and demand management (SDM). MRP controllers and SDM managers are mostly in contact with both the internal and external environment. Effective sensing is low in warehouse because administrators are limited to an internal environment and with enablement which has a complimentary function like generating transactional visibility. III. METHODOLOGY A mixed method approach was used, [18, 19]. Interviews were carried out since there are essential data-collection strategies for both quantitative and qualitative research, [20]. The data collected from the interviews will be used to further support the quantitative survey. Interview topics were chosen based on the research question of this study. The choice of using a survey questionnaire was made considering research design criteria derived from the literature review. Reference [21] stated that the main purpose of the questionnaire research is to obtain information, not easily observable or available in computerised or written form. Fig. 2 Measures frequency and quality of sensing C. Visibility for learning Visibility for learning is more effective according to SD managers and MRP controllers and it s less effective according to warehouse administrators and supply chain analysts. SD managers are responsible for setting up policies, procedures and implementing cost reduction initiatives which require technical expertise, which explains the higher learning score by SD managers. MRP controllers are directly responsible for stock control parameters and to ensure balance 74

4 between supply and demand which requires one to be equipped with sufficient knowledge to handle a robust and dynamic environment. MRP controllers are constantly acquiring new knowledge through learning and the results support this. Warehouse administrators are primarily focused on administrative issues e.g. receiving and issuing of goods. These operations are more fixed in their nature and therefore visibility for learning is less effective. They ensure that the output of work is of a form useful to others when needed They assign task to group members which are commensurate with their task-relevant knowledge and skills They ensure fair sharing of resources amongst group members E. Visibility for Integrating The influence of visibility for integrating on the performance of inventory management system were measured by asking respondents to indicate how often department performs the environment sensing action and how well the action is performed in order to improve the performance of inventory management system. The objective was to establish if actions that relate to the embedment of new knowledge into new operational capabilities are achieved by creating a shared understanding and collective sense Fig. 3 Measures frequency and quality of learning D. Visibility for coordinating The influence of visibility for coordinating on the performance of inventory management system were measured by asking respondents to indicate how often department performs the environment sensing action and how well the action is performed in order to improve the performance of inventory management system. The objective was to determine if the actions relating to the management of interdependencies between activities are performed to achieve a goal. Fig. 4 Measures frequency and quality of Coordinating The results show that visibility for coordinating is effective in all departments that were measured. Visibility for coordinating addresses the management of interdependencies between activities from all the departments that contributes to The outcome confirms the following about inbound supply chain departments: They ensure that work tasks (activities, procedures, reports) fit together very well Fig. 5 Measures frequency and quality of Integrating Visibility for Integrating is effective from all departments. Visibility for Integrating is focusses on creating a shared understanding and collective sense, which is applicable to all departments as demonstrated by the results. The results confirm the following about the inbound supply chain departments: Task are managed collectively to address situational demands. They contribute to the group with attention and care. Activities are correlated in order to manage rapidly changing conditions. They understands each other s tasks and responsibilities They are fully aware who in the group has specialized skills and knowledge relevant to their work. F. Statistical Analysis An SPSS package was used to analyse the quantitative data. Cronbach s Alpha was used to assess the reliability of the scale used in this paper. The outcome of the reliability test, Table 2 and Table 3, indicated that the scale used for both independent and dependant variables were within the acceptable range of 0.70 to 0.95, [22]. The Cronbach s Alpha values obtained in this study were also compared to Cronbach s Alpha values that were obtained in a research 75

5 done by [23], were visibility constructs used in this study were developed from. The results were found to be very much comparable, Table 2. Results shown in Table 5 indicated that moderate correlation was found between SCV and performance of inventory management. This correlation was attributed by Coordination and Integration capabilities under SCV frequency. The results in Table 6 indicate that the p-values are less than 0.05 and therefore null hypothesis is rejected. Correlation between SCV and inventory management performance is statistically significant and it s confirmed at 95% confidence level, [24]. The conclusion made from the results in Table 6, of correlation significance is that supply chain visibility is positively associated with the performance of inventory management in some aspects. Visibility for coordinating (r=.382, P <0.05), and visibility for integrating (r=.528, P <0.05) have significant impacts on performance of inventory management, supporting H 3 and H 4. H 3 : SCV for coordinating is positively associated with the H 4 : SCV for integrating is positively associated with the performance of inventory management Table 7 shows that after correlation analysis and correlation significance testing, it was found that only two variables of the SCV are positively influencing the performance of inventory management. Coordination and integrating variables explained 42 % of the variance in the performance of inventory management. IV. CONCLUSION AND RECOMMENDATIONS The results from the research study have clearly demonstrated that SCV (coordinating and integrating) explains 42% variance in the performance of inventory management and this outcome was accepted at 95% confidence level. Based on the outcome of the research study we therefore conclude that management should give more emphasis to the two constructs of SCV identified as having a positive influence on the management of inventory. The study was unable to provide the answers to all the four questions proposed in the research. Answers were only provided to question III and IV by establishing a positive relationship between SCV (Coordinating and Integrating) and inventory management performance. The results from research study failed to answer question I and II by not establishing positive relationship between SCV (Sensing & Learning) and the We suggest the use of a larger sample size and the new study should cover the entire inbound supply chain stream as a whole. A more detailed study should be done to investigate if there s influence from SCV (Sensing & Learning) to the performance of other department within the inbound supply chain. TABLE II SUMMARY OF SCV CRONBACH S ALPHA AND COMPARISON TO ORIGINAL SCALE BY PAVLOU, PAVLOS A (2004) SCV Cronbach's Alpha Comp onent Item Studied Freque ncy Quality Mean Original Research S Market orientation L Absorptive capacity C Coordination capability I Collective mind Key: S- Sensing; L- Learning; C-Coordinating; I-Integrating TABLE III INVENTORY DOV CRONBACH S ALPHA Inventory DOV Item Studied 9 Correlational Strength Table Cronbach's Alpha TABLE IV CORRELATION STRENGTH 0 < r <.3 Weak correlation.3 < r <.7 Moderate correlation r > 0.7 Strong correlation TABLE V CORRELATION (SCV & INVENTORY PERFORMANCE) SCV & IM Performance IM Performance (Frequency) 1. Sensing Learning Coordinating Integrating TABLE VI MODEL-TESTING RESULTS Significance of correlation IM Performance (Quality) Hypothesis r-correlation p-values Significance SCVC > IM Performance Yes SCVI > IM Performance Yes Indicates significance at p < 0.05, respectively. SCVC = Visibility for coordinating, SCVI = Visibility for integrating TABLE VII SQUARE PART CORRELATION Inventory Performance R R-Square Coordinating Integrating Total

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