A FRESH LOOK AT INVENTORY
Last year, National came up with an answer to this chicken-and-egg problem--a solution so innovative and integral to its business that we selected National as the No. 1 company overall in this year's InformationWeek 500 ranking of technology innovators.

It's a new inventory service, called Virtual Inventory, added to National's homegrown System ONE service-oriented architecture. The service lets distributors show components as available within their inventory without their actually stocking the part. Virtual Inventory as a System ONE service can link to an outside partner, such as electronics distributor Arrow Electronics. When a design engineer asks an Arrow distribution center about a promising new part, he may be looking at what his Arrow distributor has in stock. Or he may be looking at the distributor's virtual inventory, getting passed through Arrow's inventory system straight into National's system, where the newest parts are most likely to be in stock.

Designers want to know a part exists. They're asking, "Is it real or is it vaporware?" explains Douglas Owens, head of central planning and production control at National. In a practice that's typical of National IT managers, Owens spent two weeks at Arrow to understand how designers select parts from Arrow's inventory database. The new SOA service followed and was implemented at Arrow in July.

It's too soon to say what Virtual Inventory's impact will be, said Jeff Eastman, Arrow's VP of global supplier marketing, but he calls Virtual Inventory "a good example of how suppliers are trying to be very creative in helping our customers get their products to market more quickly."

Virtual Inventory, by serving as an early indicator of where demand lies, has the potential to reduce Arrow's returns to National, Eastman says. It makes more parts available through Arrow's inventory system, without requiring Arrow to buy so many components up front, he adds.

	Seif and his team spend time in the field with each line of business Photo by Kim Kulish
	A National worker makes sure wafer die is error-free

In the long run, Seif believes innovations like Virtual Inventory will reduce the amount of investment a manufacturer and distributor will have to tie up in unsold inventory. Seif says virtual inventories eventually will cut the number of parts in stock by half and reduce wasted sampling, where parts get shipped to regions of the world where demand doesn't necessarily develop for them. Such shipments eventually get sent back to the manufacturer, at added expense. Other parts sit too long on the distributor's shelf and become outmoded.

"Shipping parts back and forth is a waste of money. Look at the carbon footprint. Virtual Inventory fits right in," Seif says.

National still ships the part to the distributor for final delivery because distributors are loath to be cut out of the delivery process "even when we put their label on the product," Seif says. Their systems are geared to deal with the needs of thousands of small part orderers, he adds, and National's are not.

But is Virtual Inventory able to offer the same delivery schedules as parts in Arrow's stock? Both National and Arrow say deliveries can be made in nearly the same time frame, given the close linkages of systems. Still, if a distributor tantalizes designers with parts that aren't really available, both it and the supplier risk losing business. Generating demand without the supply to fulfill it would leave product designers fuming.

With Virtual Inventory, National is getting a step closer to the heart of the design process. Several middleman steps are eliminated, such as shipping valuable samples of an early production run to many distributors instead of just the ones that will be needed to fill early orders.

Says Arrow's Eastman: "We watch closely to see what parts engineers are adopting, the size of the projects, and which ones are going into production." Orders lodged through Virtual Inventory "are a good example of a potential solution" to a distributor's problem of what parts to order and stock, he says.