Inventory control and management has become a critical challenge in many
manufacturing and non-manufacturing organizations. And, to their credit,
increasing numbers of purchasing and supply management professionals are
stepping-up and assuming inventory management responsibility. Respondents to a
recent SSMR survey shared the techniques they applied and the experiences
encountered. We've selected the following as the best solutions initiated and
some models to follow.
Vendor-managed inventory calms dynamic customer schedules. One
technique that's gaining greater visibility among purchasing professionals is
the use of VMI practices. It's kind of outsourcing your inventory management
responsibilities-but it still requires oversight-to achieve significant
benefits.
For example, a supply chain manager at a large manufacturer of
aerospace composite products, offers, Very dynamic customer schedules along with
long lead-time products to procure challenged our ability to control inventory.
His answer was found with a vendor-managed inventory practice.
We utilize a vendor managed inventory process in which we have reduced on-hand
stock to a maximum of two weeks, and have negotiated a four-hour response for
emergencies, he explains. This has resulted in internal savings of 5%.
In addition, the supply chain manager tells of negotiating a
service agreement for procurement, stocking, re-stocking at no additional cost
over the current unit price of SKUs. We're in the process of expanding this to
other purchases, he notes.
Scorecards help achieve tighter control of inventory. Supplier
performance is being measured in a variety of areas. One of the most frequent is
related to inventory performance, and not just on-time delivery. For example, a
junior purchasing agent at a mid-size contract manufacturer shares, Inventory
control always has been a major focus of all the departments here, not only for
the reasons of working capital, but for space considerations. We have a small
warehouse and have a policy of bringing in suppliers to support production five
to eight days before an item is scheduled to run.
Purchasing also has implemented a policy of 5% over and zero
under, and many of the suppliers now participate in a performance review where
they are graded on how well they meet expectations, especially this over/under
policy. The use of our scorecard helps to ensure we don't have major over-runs
or lack of inventory that might ruin an entire batch of product, she
expresses.
Suppliers responsible for checking and replenishing inventory.
There are a number of vendor-managed inventory processes. Here, a supplier
maintains an on-site presence.
We have established stock programs where the supplier checks
minimum inventory on site, calls in stock returns when stock arrives, and stocks
shelves, a purchasing manager at a mid-size manufacturer shares. This has
decreased stock held at our company to a minimum, and guarantees delivery of
materials since the stock is owned by the supplier until it's removed from the
shelves.
The process has encouraged faster turnover, and virtually
eliminated any excess or slow-moving inventory, as it is removed from the
program if it remains on the shelf for more than three weeks.
Introduce an auto-replenishment process to maintain inventory
flow. Among the favorite auto-replenishment processes is the kanban concept.
Some signal (a tag, a tote) is often given when a supply of parts reaches a
level that necessitates reordering.
We have established a kanban process where the kanban sizes
are based on cost/usage and EOQ, the senior supply chain manager at a mid-size
maker of vacuum pumps explains.
They have brought in and maintain two kanbans in a controlled
location. Transfer of kanban to uncontrolled location triggers replenishment
order in SAP Supplier, which maintains one kanban on shelf. Overall, the process
has accounted for savings of $500,000.
Holding inventory at the supplier's location. A few years
back, the favorite tactic was to move the inventory back to the supplier and
have it held until needed. It's not as blunt as that today, as there is often an
exchange or sharing of information that goes along with the practice that often
benefits both parties.
For example, We have our suppliers hold inventory based on
forecasts and released as required for production, the director of purchasing at
a small assembler of wire harnesses explains. The material is delivered to the
point-of-use in tubs designed for the work cells.
She continues, By putting parts into our returnable plastic
totes, we do not have waste (packing material) to deal with. In addition, we've
improved our inventory turns while enjoying less handling of the materials.
Shift inventory management of MRO items to suppliers. In yet
another version of VMI, a director of purchasing and materials management at a
large provider of oilfield services offers, The most successful category for
total cost reduction was in shifting inventory management to our suppliers.
The suppliers now are responsible for counting, ordering,
stocking and maintaining their assigned basket of supplies. The reduction in
cost to our company in receiving, stocking, ordering, and cycle counting was at
least one man-year, he notes.
Move to consignment inventory stretches dollars. Consignment
inventory has a long history as an inventory management/cost reduction
technique, and it is still among the most popular today.
We brought in supplier stock on a consignment basis, paying
for it only after the items are used, a materials manager at a small builder of
heat-treating furnaces shares. Rather than buying inventory items and then
using them up, we can stretch our dollars by waiting to pay for items 60 to 90
days after we use them, even though we have them in stock, he explains.
This article is brought to you with permission from IOMA's
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