Booz Allen Hamilton Misrepresents Inventory Optimization in White Papers

Two white papers on inventory optimization would badly confuse anyone who does not work in the area as to what inventory optimization actually is. Booz Allen has insufficient knowledge in this area to put out white papers on this topic.

What This Article Covers

• How do supply planning vendors answer the question of whether their software is “Lean?”
• Can supply planning software be made to be “Lean?”

The White Paper Review

I recently found several white papers by the strategy firm Booz Allen Hamilton, and as I was reading through them began to say to myself, “these are completely wrong.” I thought it would be educational for others in this area to understand why they are wrong and to use this as an example of how misinformation about inventory optimization is spread by companies that have no idea what they are talking about. Below are examples of quotations from these papers, followed by an analysis of each.

Rising logistic costs and need for better service are placing greater pressure on government agencies and their business partners to achieve savings through a lean yet responsive inventory.

Lean is responsive, they are synonymous with each other. It’s illogical to say lean but responsive. It would be like saying light but low in weight.

The need to optimize inventory performance is not new. But organizations today are facing a confluence of particularly harsh pressures: rising storage and transportation costs; an at-capacity, aging infrastructure; and, for many organizations, increasing service or mission requirements that hinge on providing the right inventory, at the right place, at the right time. daily by service members, and the General Services

Are these costs rising faster than the costs of inflation? If so, where is the evidence? Companies have for quite some time had to provide items at the right place and the right time, but Booz Allen is presenting this as a new phenomena. The paragraph is setting up a feeling of change as a motivation for using inventory optimization. However, no change is necessary to promote the use of inventory optimization. The more accurate reason for using inventory optimization is because it is a superior technology that leads to superior business results.

Unfortunately, standard inventory optimization approaches have achieved uneven success when addressing these challenges. Traditional approaches, implemented in Enterprise Resource Planning (ERP) systems, use metrics such as economic order quantity, turn ratios, and fill rates and are very effective for consumer-oriented inventories that have large volumes and high turn ratios. for raw materials, parts, and products that feed a manufacturing line, repair line, planned projects, or kit assembly. Global manufacturers, for example, plan specific production runs of their products. Military repair depots plan for a specific number of overhauls or component repairs during annual cycles. While demand for end products or repaired equipment or components may change.

• On the first point, ERP is not a standard inventory optimization approach. It is the opposite of inventory optimization as ERP systems contain MRP and DRP functionality.
• On the second point economic order quantify is not a metric it is an ordering formula. Fill rates are not only effective for large volumes, but are the essence of inventory optimization. (This paper makes this error several more times in different areas declaring fill rates inappropriate for managing lower volume environments.)
• On the third point, global manufacturers planning specific runs of their products is a manufacturing issue, not a supply planning issue.
• The fourth point moves the topic to service parts. This sentence does not have much to do with the previous sentences. The paper continues to intersperse service parts environment discussions in different areas missing the fact that inventory optimization applies both to finished goods and service parts environments. A reader of the paper unfamiliar with the area would come away with the impression that ERP planning is fine for high volume environments, but low volume environments require inventory optimization (which the paper never properly describes), a conclusion which is untrue.

Widely dispersed business and organizations, with national or even global footprints tend to use multi-echelon inventories. That is inventories are layered at central, regional and local distribution centers or warehouses.

Actually, larger companies with more locations do not use “multi-echelon inventories,” but have multi-echelon supply networks. Inventory resides within locations of the supply network. However, a company can have a multi echelon supply network, but not necessarily use multi echelon software, in fact most do not. The authors seem to miss the point that multi echelon functionality and inventory optimization functionality are two separate functionalities that interoperate with one another in the better MIEO applications. They are using two terms here, one which they completely misunderstand, and one which they only half understand. It would be impossible to me to actual write a white paper and load it for general viewing without understanding some of the main terminology that the paper discussed.

Numerous organizations such as the military services face tremendous challenges as they transition from legacy systems to more modern ERP systems. In part, this is because of the need to carefully select and adjust parameters for break/ fix inventories in ERPs that are primarily designed for Consumer/Retail inventories.

This paragraph has some problems that could be easily misconstrued. Later paragraphs do nothing to shed light on the actual issue, so I will do so here. ERP systems have implications for the entire enterprise, they connect accounting with supply chain operations, HR, etc.. It is not necessarily the case that organizations will have a problem if they implement ERP systems in a service environment, only if they do so without a service parts planning application. The article makes it sound as if a company has to choose between an ERP implementation and using something else, which is not the case. Systems are not mutually exclusive but can be blended into integrated solutions.

To help organizations that have unique inventory needs, Booz Allen recommends developing a Mission-Focused Inventory Strategy using a three-step process 1. Identify the mission requirements supported by the inventory, including the corresponding inventory roles and characteristics. 2. Design inventory metrics and select the appropriate analysis tools to optimize inventory efficiency and bolster its support of mission requirements. 3. Align inventory strategy with the organization’s overall supply chain strategy to ensure that all interrelated processes achieve complementary improvements.

Now we are getting to the heart of it. Booz Allen is a strategy firm and is offering strategic consulting on inventory strategies. However, there is only one problem. None of this is inventory optimization. Secondly, none of these things are new in terms of “thinking outside of ERP.” Companies have always performed inventory analysis outside of ERP. If all a company has is ERP then they must use external analysis to make adjustments to parameters in ERP that will still result in zero inventory optimization. Companies have been doing this for decades and the result is not that great because the levers within ERP are indirect in achieving a higher order control of the supply network.

Hiring Consultants Who Are Confused as to What They are Consulting In?

Rather than hire Booz Allen consultants who are confused themselves as to the basic the terminology in the area, the company that wants to improve its supply chain should invest in and implement real inventory optimization and multi echelon software. This will allow them to create a sustainable solution for their business.

Overall, Booz Allen’s white paper both misrepresents technical terminology, but then secondly, its conclusions (e.g. bringing in Booz Allen to do a strategy project and put together some Pareto charts) do not follow from the information provided in the paper.

These are just some examples. Most of the Booz Allen white papers contain information that is neither here nor there. It is just filler. There are many sentences that declare how important it is for an organization to this that or the other, but which do not directly pertain to the topic of inventory optimization. The fact that the CDC needs to respond to emergencies without anymore detail is not sufficient information to declare inventory optimization the cure for what ails them. Secondly, Booz Allen presents the application of inventory optimization as situationally dependent when it isn’t. I have yet to work at a company that used either ERP or advanced planning software that could not pay for an inventory optimization project with the savings from that project over several years. The only ones that can’t are those that are too small in sales and inventory.

Previous Exposure to Booz Allen Hamilton

Around 10 years ago I was speaking to my step brother who was a specialist in electronic train switching equipment. Knowing I was in consulting he asked me what I knew about Booz Allen Hamilton. The reason he asked is that he had noticed that they had begun to put certain people in conferences and create a background for several of them in his area who did not have the necessary experience to give talks or provide consulting on the topic. It is interesting that I have now observed this in my own area of consulting, which is quite a bit departed from my step brother’s area.

Conclusion

It’s important to write about what you know. Booz Allen Hamilton is not doing that here. They are grasping at trendy terms and putting fluff out on the internet. Because they are a prestigious company, many people will assume they know what they are talking about and also assume that the information in this document is correct when it isn’t.

What people who work in this field should take from this is that more likely than not, clients and customers have a good probability of being misinformed by trendy articles like the ones I have critiqued here. This article can be used to point out the misinformation which is circulated by irresponsible companies like Booz Allen Hamilton who have people writing outside of their subject matter areas. The video below describes the terminology problem faced by inventory optimization.

After reviewing some of the evidence for the faulty information, one can segue into explaining what inventory optimization and multi echelon planning actually is.

References

Inventory Optimization Fact Sheet – Booz Allen Hamilton

Think Outside Your ERP – Booz Allen Hamilton

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