@ Supply Chain Management


Creating Supply Chain Value w Cycle Time Inventory Yield – Part 2

In Part 1 of Creating Supply Chain Value w Cycle Time Inventory Yield, I looked into what I considered an excellent piece by Thomas Craig concerning what he identified as key drivers in a Supply Chain – Cycle times and Inventory yield management. In this concluding part, I want to explore the specifics of both Cycle time and Inventory yield management.
As introduced in the earlier post, cycle time is,

This cycle time is total inventory days in the supply chain; and it is consistent with the length and definition of a supply chain. The supply chain cycle time runs from the purchase order placed on suppliers through to final placement on the store shelf or floor or to the customer’s warehouse.

and Inventory yield management refers to,

Yield management is applicable in supply chain management when inventory is viewed as the supply whose yield is to be maximized.

If one is familiar with lean thinking, then the importance of time within the supply chain shouldn’t be a surprise to you. Thomas’s implication when it comes to cycle time within a supply chain context seems to be centered around inventory cycle time i.e understanding the end to end inventory transformation across the supply chain that is under a firm’s control. In part that is driven by the need to recognize that quite a significant portion of the firm’s capital is tied up in inventory whether it is known or unknown. He says,

Studies have shown that manufacturers and wholesalers have over 60 days of inventory and that retailers have over 90 days of inventory capital tied up. These times do not include the entire inbound inventory in the supply chain. Real supply chain inventory is likely 25% higher.

As for Inventory Yield Management, Thomas begins by defining the concept of Yield Management. Yield Management is a term that has varied meanings in various industries. Among the examples given,

1. Yield management is often associated with the airline and hotel industries where reservation-based companies attempt to maximize revenue from fixed supply or capacity, seats on a flight or rooms in a hotel.
2. Ocean carriers practice a form of yield management balancing the timing and value from the service contract signing period through peak season when space may be at a premium regardless of pricing and into slack season where price reductions are given to freight forwarders to fill ships.
3. Many items, as retailers know, enjoy a short shelf life relative to demand to the price customers are willing to pay. Sales promotions, discounts and markdowns are almost common practices to draw customers. Firms that are in dynamic, volatile businesses, such as fashion and related, know the impact of short product life cycles and pricing decisions on the bottom line.

When such a concept is applied to Supply Chains, what form might that term yield management take?

Yield management is applicable in supply chain management when inventory is viewed as the supply whose yield is to be maximized.

Is this necessarily the only definition possible? There is another possible definition that comes to my mind readily: Yield management is applicable in supply chain management where yield is the value obtained when total supply chain inventory is minimized. The latter, I think, is the definition that most inventory management software solutions strive towards in their solution approach. In both cases, one could argue that the notion of time has been introduced into the definition:
1. In the former case, the drive to ensure that yield on inventory to be increased which indirectly means that inventory has to pass through the firm faster
2. In the latter case, the drive to minimize inventory throughout the supply chain occurs in two ways – increasing flow and setting better inventory targets
So how does one go about improving the yield management of supply chain inventory?

Incorporating yield maximization of inventory beginning at the supplier level converts an operations research tool into a supply chain operations paradigm to manage the product and its flow.


This yield management driver realizes inventory velocity with its focus on supplying product and not on placing it at customers or in stores. It puts the focus where it belongs, at the beginning of the supply chain where product originates.

Its hard to see how such an application of yield management to supply chain inventory that focuses on procurement might improve the situation with inventory within the total supply chain. Instead, I would argue that its a streamlining of the entire supply chain beginning with procurement, value-added activities and delivery and applying some notion of yield management of the different kinds of inventory found in every state previously described is the way ahead.
The article then explores several practical ways in which cycle times can be reduced and yield management of inventory maximized but not in any structured manner that might be useful for a supply chain practitioner. What might be needed for supply chain practitioners is really a segmented view of the supply chain and various ways in which whatever technology that exists can be mapped and used – which probably is a full time job in itself.

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Category: Supply Chain Management


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October 2006