Process Mining Identifies Waste in your Inventory Management

Blog 4_CFO_Inventory Management main imageStreamlining Inventory management is a key strategy CFOs can get behind as they work to reduce risk and free up cash as inflationary pressures continue. Over the previous three articles (scroll down for links to these articles), I’ve explained how eliminating execution gaps and correcting process inefficiencies in accounts payable and accounts receivable processes benefits CFOs. Today the focus is on inventory management.

A process mining view of your inventory management helps a company avoid bottlenecks and deploy capital efficiently. Celonis technology plays a key role in maximizing the effectiveness of inventory management. By accessing event logs in your financial and process automation systems, such as SAP and Oracle, you can identify process inefficiencies as well as other inventory management challenges, such as rogue purchasing.

With the data in-hand, CFOs can then move from a reactive stance to proactively managing inventory.

Given the realities of supply chains right now, process mining isn’t a silver bullet. It can, however, ensure that your inventory is as up to date as possible, which will allow companies to provide accurate updates to their customers.

This Celonis video [click the image to play] uses a motherboard supply chain issue to illustrate how to effectively manage inventory. 

Celonis Demonstration of inventory management

On Time Supplier Delivery – A Key Measuring Stick

Research from Celonis, The 2021 State of Business Execution Benchmark Report, points to procurement relative to inventory management. According to Celonis Benchmark research, two of the three highest priorities in procurement touch on inventory:

  • Deliver greater strategic value to the organization. Inventory teams want more time to focus on activities that add strategic value for their organization – such as working with partners to drive innovation and proactively anticipating supply chain shifts.
  • Build a robust, reliable supplier portfolio. Following the pandemic [note that the Celonis report was written before the current Omnicron resurgence], many Procurement teams have refocused on continuity, putting a huge amount of their time and resources into ensuring that they can maintain continuous supply in the event of unforeseen crises.

One core KPI tracked by leading procurement teams is supplier delivery reliability. The research revealed a huge disparity between companies that do a good job with supplier reliability and those that don’t. For the average company, supplier deliveries are on time only 54% of the time. Best-in-class organizations receive supplier deliveries on time 83% of the time.

That means your products reach customers on time too.

The Role of Process Mining in Managing Inventory

Every business has well-defined procurement workflows, including for inventory management. But as we all know, those processes aren’t always followed in reality.

Rogue buying can be a challenge – especially as material availability for supply chains and delivery challenges remain problematic during the ongoing pandemic. Having too much inventory can be as much of a headache as too little. But process mining helps you hit the “just right” sweet spot more often than not.

With process mining, key performance indicators can be presented in a dashboard that’s easy to read and act on. At a glance, manufacturers can see :

  • Material availability
  • Turnover rate
  • Days in inventory
  • Supplier reliability
  • Adherence schedule
  • On-time delivery

Further, you can drill down into each KPI to identify execution gaps and to correct them. For example, if a particular inventory item for manufacturing is consistently causing production delays, you can look at the data to determine the cause. Whether it’s a recurring shipment delay, a formerly reliable supplier, or something else, you can use the data to shift to another supplier, order earlier, etc., to avoid production delays.

Next Steps and Additional Reading: Your Own X-ray and Report Card

If you haven’t read the first three articles in this series, here they are:

Now that you’ve caught up, the sooner you begin, the sooner you'll close your procurement execution gaps. Doculabs can help you use process mining to delve into your data so you know where you need to improve now and where you can create value in the future. 

We do this with a "CFO Report Card" approach. It's an X-ray of your current data created with Doculabs industry expertise combined with process mining from Celonis to:

  • Diagnose how well core processes such as procurement are performing
  • Provide an executive summary report that will include process improvement recommendations in order to budget for 2022

Ready to see what your grades are?

Yes, I'd like to know more.

Rich Medina
Marty Pavlik and Rick Hassman
Marty Pavlik (mpavlik@doculabs.com) is Executive Vice President at Doculabs, helping clients put in place complex digital business transformation initiatives involving leading technologies. Rick Hassman (rhassman@doculabs.com) is Manufacturing Practice Lead - Celonis.