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Back to Inventory and Demand-Planning Basics

by APICS CEO Abe Eshkenazi CSCP, CPA, CAE | N/A 2012 | 0 | 0
APICS Operations Management NowThere’s a song you can’t avoid if you listen to pop radio in the United States, "Price Tag," and its refrain sticks with you whether you like it or not: “It’s not about the money, money, money.” I think for those in supply chain and operations management, we could follow that line with one that goes something like this: “It is about the inventory, inventory, inventory.” No, it doesn’t make a catchy pop song, but it does remind us of some fundamentals in the APICS body of knowledge.

Those fundamentals are exactly what Chinese manufacturers need to embrace, according to an article in last Thursday’s New York Times. “The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown,” Keith Bradsher writes. “It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.”

China is swimming in cars, houses, plastic tubing, solar panels, bedsheets, and much, much more. Low sales and high inventories reveal a glimpse inside the bigger problem of China’s wavering economy, which had been a source of stability during the international financial crisis. “Problems in China give some economists nightmares in which, in the worst case, the United States, and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses, and political gridlock paralyzes the United States.”

According to the New York Times, Chinese car factories are operating at only 65 percent of capacity, yet new factories continue to open. More numbers illustrate an alarming trend: Chinese automakers sold 600,000 more units wholesale to dealers during the first half of this year than in the first half of 2011. Yet, dealer inventory grew by 900,000__indicating flat or, more likely, declining sales. And production continues.

Unfortunately, Chinese government regulations also create challenges. For example, in an effort to decrease traffic congestion and pollution, authorities are issuing limited new-car registrations. Limited registrations mean limited car buying. The same is happening in the housing market, where the government is trying to bring home prices down by restricting the purchase of second and subsequent homes. Now, construction firms are struggling, construction workers are out of their jobs, and homes are sitting empty.

Simple ideas, complex problems

China’s decision makers have experienced unprecedented growth over the last 30 years as they have seen their economy rise to become the second largest in the world. With more money in their pockets, Chinese workers were able to demand more goods, whether produced at home or abroad. However, now supply is growing and demand isn’t. Perhaps its time to go back to one of those first lessons of economics: supply and demand management. According to the APICS Operations Management Body of Knowledge (OMBOK) Framework, “management of supply and demand is accounting for demand variability by providing adequate supply capacity and demand flexibility so that production rates match strategic objectives and goals.” The OMBOK Framework further lists managing capacity, managing inventory, and managing demand as components of supply and demand management.

During the 2012 APICS International Conference & Expo, October 14–16, 2012, in Denver, APICS is proud to offer “Alignment to Demand,” an entire learning path dedicated to supply and demand management ideals. Consider “Consensus Demand Management for Better Planning,” which will be presented by Kenneth L. Titmuss, CFPIM, CSCP. He suggests that while strategic planning takes place annually, sales and operations planning happens monthly; and, therefore, demand management also should be a monthly process. Further, demand planning should happen as soon as possible in each new month.

Come to Titmuss’s session Monday at 2:30 p.m. to learn more about consensus demand management. Don’t miss out on this and other exciting opportunities at APICS 2012.

Don’t forget: APICS members can discuss this and other current topics in the Operations Management Now community, part of the APICS Supply Chain Channel.

In other news

Related APICS education
  • Adaptable Inventory
    By Dave Turbide, CFPIM, CIRM, CSCP, CMfgE
    January/February 2012, APICS magazine

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