In inventory management, finding a suitable trade-off between service level and costs is difficult. As a part of any supply chain, inventory management includes aspects such as, controlling and overseeing purchases (from suppliers as well as end customers), maintaining the storage of stock, controlling the amount of product for sale, and order fulfillment.
The importance of effective and efficient inventory management is very evident for the consumer goods industries, especially those exposed to complex omnichannel challenges. Historically, it’s been an area with the most advanced techniques and sophisticated technological improvement investments.
In contrast, generally, across the energy industry, the focus on inventory management has not been high. With the challenges of an evolving complex global supply chain, the rising logistics costs, and the need to swiftly adapt to customer’s needs, the energy industry must dedicate increased analysis and optimization efforts on economic or technology-based changes. In addition, there is more stress on assets’ operations and the ability to supply the right parts in the right locations at the right times. Lastly, in today’s competitive environment, margins are much tighter, and therefore, inventory costs (and its effect on working capital optimization) have become much more critical.
Finding an Appropriate Inventory Management Strategy Can Be Difficult
With all the options to optimization efforts in inventory management, finding the right solution can be difficult. Key challenges for inventory management across the energy industry include:
- A high degree of delocalization, with multiple (sometimes dispersed) global geographies
- Limited holistic view of all equipment and parts profiles visibility across locations
- No consolidation and synergies approach in inventory management
- Inadequate demand management leading to overestimation or underestimation of parts needed for a project and for operations
- Using common utilization of shelf availability rate as a key driver to define the inventory management strategy versus focusing on asset up-time factor
- The general absence of specific technology and systems to enable efficient inventory optimization, therefore ending in an overstock tendency
- The relatively high level of preservation needed for oil and gas (O&G) equipment
Considering the key challenges for inventory management listed, it’s not surprising to see that the most common characteristic of inventory management in the energy industry is carrying excess inventory. Additionally, the COVID-19 pandemic and Ukraine/Russian War supply chain challenges forced all industries, not only O&G, to move from a “Just In Time” approach to a “Just In Case” one, which now requires re-tuning. All of which stated, in cascade, exacerbates the issue.
A Holistic End-to-End Inventory Management Operation Review is Needed
Based on the experience and insight from our Solomon subject-matter experts, a client can benefit from structured and professional pragmatic support in optimizing its inventory management process.
While there’s no one-size-fits-all approach to inventory management optimization, the past successful interventions done by Solomons’ supply chain experts show that an effective process is to follow these key steps:
The last two steps are usually managed directly by clients, while Solomon focuses on the analysis and the strategy redefinition steps.
For example, when focusing on maintenance, repair, and operations (MRO) aspects of inventory management, some of the key techniques Solomon can leverage to improve inventory management are:
Solomon Led Inventory Management Strategy Optimization Delivers Real Benefits & Opportunities
Solomon’s insight, data, and years of experience show that a diligent, focused, and professionally-led inventory management strategy review can lead to up to a 50% of reduction of storage locations, reduce the number of inventory items in half, and create additional revenues from disposing of obsolete and surplus materials reaching the range of hundreds of millions of dollars.
Solomon can support clients at the strategic, tactical, and operational level through direct involvement in similar initiatives. Solomon can define the right trade-off for a client’s new inventory strategy between three main key levers: COST, SERVICE & SAFETY.
Solomon is available to discuss this opportunity further. Let us help you optimize your inventory management. Contact us to learn more.
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