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Analyzing time and inventory

To help understand the relationship of time and inventory it is useful to be aware of the concept of activities that add value to the supply chain and those that do not add value. An activity that adds value is one that provides a positive benefit to the product or service being offered. This can be assessed in terms of whether the customer is prepared to pay for this activity. An activity that dose not add value is one that can be eliminated from the supply chain process and will not materially affect the finished product as far as the final customer is concerned. The analysis of supply chain activities in terms od the extant to which they add value to a product has thus become an important factor in the assessment of supply chain efficiency. The aim is to identify and eliminate those activities that add cost but do not add value. The holding of inventory within a supply chain is one such activity and many companies are now trying to eliminate unnecessary inventory from their supply chains.

One method of highlighting unnecessary inventory is through the use supply chain mapping. This technique enables a company to map the amount of inventory it is holding in terms of the lengh of time that the stock is held. An example of this technique is provided in Figure 13.3. This is an example from the US clothing industry. It shows:

·         Value adding time which is represented along the horizontal axis. This shows the total of the manufacturing and transport time for the whole supply chain process from the initial raw material fiber to the supply of the finished product to the end user. It is value adding because the product is changed either through a production process or through a movement process. It amounts to 60 days.

·         Non value adding time which is represented by the vertical lines that rise from the horizontal axis. These show the various occasions when the part prepared or finished product is held as some from of inventory. This is adding no specific value to the product. This amounts to 115 days.

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The total time or pipeline time which is the addition of the value adding horizontal time and the non value adding vertical time. This there fore includes all the time that it takes through all the different manufacturing storing and transport processes. This is a total time or volume of 175 days.

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