Murad needed help with its inventory management. The personal care products company about 18 months ago was running out of popular SKUs, which was disappointing its customers, and it had excess inventory on other items, which carried a hefty cost.
Enter Charles Jones, senior director, supply chain at Murad. After joining Murad in November 2008, Jones’ top priority was transforming the troubling warehouse situation. Multichannel Merchant caught up with Jones to find out how he resolved the warehouse/inventory problems at Murad.
Q: How did Murad get into trouble with its inventory, and what has been done to change that situation?
A: I’ve consistently observed one distinct area of supply chain which many small- to mid-sized companies have problems resolving: How to manage inventory during an unforecasted momentous spike in sales. This scenario can be exhilarating for sales if the inventory is readily available, but can often be disastrous if inventory and safety stock levels aren’t sufficient to support the increased sales.
What tends to happen is supply chain departments overcompensate for this increased demand by procuring inventory based on an unknown variable–sales forecast peak. Consequently, when sales stabilize and return to normal levels, inventory is already purchased and thus, excess inventory is created.
As with other companies, Murad experienced the same growth pattern. To mitigate future risks, we made several changes to our production planning and forecasting processes. We increased collaboration between our sales, marketing and operations department resulting in trending reports to proactively identify gaps in our supply and demand operation.
Q: Could you provide some specifics on the major turnaround in Murad’s operations and fulfillment you spearheaded in the past year?
A: Along with the existing management, we all decided both structural and process changes were needed to support the vision of the supply chain department. We changed our philosophy from commodity planning to brand planning. This enabled the supply chain group to effectively collaborate and support other internal departments.
In addition, we created strategic, tactical and contingency plans for all processes within the department. With each plan, we assigned a specific goal, created a timeline and benchmarked our achievements.
One of the primary tasks was to optimize our supply chain planning software by validating the data and creating realistic planning parameters. When we conceptualized our 180-day strategic plan, the first step was to verify the realism of our existing supply chain planning parameters and if they could support our goals.
Once we concluded the data integrity phase, we performed several real-time simulations, which involved sporadic supply and demand scenarios similar to those of every-day operations.
Q: How does inventory affect the day-to-day operations of the company? What needs to happen for things to flow smoothly?
A: In my opinion, inventory management is one of the single most contributing factors in the success or failure of a company. Murad supply chain department’s primary goal is to maintain an adequate supply of goods while minimizing inventory-carrying cost.
Maintaining sufficient inventory to adequately support sales while minimizing inventory-carrying cost are unfortunately competing goals and can be detrimental if not monitored. Although our ultimate goal is to satisfy and fulfill every order 100% complete, this would be very costly and unrealistic without maintaining an inordinate amount of safety stock inventory
On the other hand, it’s important for us to maintain our liquidity, which allows us to rapidly respond to market changes and invest when opportunities are present, creating potential growth. This can only be achieved if we do not constrain our cash flow by carrying excess inventory.
Last year, our supply chain team created balanced strategic goals that encompassed industry standard order fulfillment rates and competitive inventory carrying cost. After we implemented our processes, we maintained an order fulfillment rate of 98%-plus while reducing our inventory carrying cost by 27%, within a 12-month period.
In 2010, we anticipate reducing our inventory cost by an additional 25% while maintaining our high level of order fulfillment, resulting in a total inventory reduction of 52%.
Q: Can you explain what a just-in-time (JIT) system is, how it works and the specifics involved with the one you put in place at Murad?
A: The primary goal of JIT is adequately fulfilling customer inventory demands at the lowest possible carrying cost. This replenishment technique is a key factor of generating cash flow and often used when physical inventory space is limited.
Ideally, most companies–including Murad–have an interest of incorporating some type of JIT system within the operation. The driving factor of a successful JIT process is lead-time reduction and management.
Reduced inventory lead-times increase cash flow and allow the operations team to quickly react to escalating sales demand. When we implemented our JIT technique, reducing lead-times was our first priority. Supplier assistance and agreements were critical to our success.
Q: How challenging was it at first after the JIT system was in place?
A: Any time a new process is implemented, there’s an initial phase of learning and acceptance. It took about five months to reap the benefits of the new process.
During the infancy phases, we had several obstacles to overcome, which included the addition of key staff members to support the new structure. Once the new staff got acclimated to the culture and the existing staff adopted the new techniques, we began to realize the satisfactory result