Simplicity beats complexity in managing inventory

Mergers and acquisitions may be good for growth, but they can create headaches for a company's inventory and delivery performance. This was the case for Johnson Controls, according to a presentation at the Council of Supply Chain Management Professionals Annual Global Conference by Michael Maltz, the company's Director of Global Manufacturing and Logistics for the Business Efficiency division.

Johnson Controls comprises several divisions, including Automotive, Power Solutions, and Building Efficiency, and incorporates companies that it acquired over the years. As a result of that growth by acquisition, however, Maltz's division lacked a consistent methodology and processes for managing inventory and replenishment for its various product lines, which include build-to-stock, assemble-to-order, and build-to-order products. What processes were in place were informal, inconsistent, and specific to local organizations.

To rectify the situation, the Building Efficiency division implemented a two-tiered approach to inventory management. It exerts centralized control over strategic inventory issues, including sales and operations planning, management policies, and development of standards and procedures. But the division leaves tactical inventory processes, including purchasing and implementation of corporate directives, in the hands of local managers.

The division also simplified inventory data collection and decision making by using forecasting software that sits on top of multiple enterprise resource planning (ERP) systems. The software brings together sales, marketing, and operational information from all of the component groups and produces forecasts at both the stock-keeping unit (SKU) and product-family levels. It also provides inventory visibility for both domestic and international DCs—information Johnson Controls did not have before. In short, Maltz said, applying standard procedures and a flexible, scalable software program allowed his organization to gain a realistic view of a complex distribution and sourcing structure for the first time.