In the not-too-distant cable industry past, warehouses were filled to the brim with goodies for our hybrid fiber/coax (HFC) networks. From set-tops to servers to two-way splitters and everything in between, inventory of all sorts sat on shelves and on the books for months.

Today’s new technologies are changing the way the industry buys and stocks equipment, and system clustering and consolidation are creating challenges for managers as they attempt to bring new systems, equipment and practices into the fold—and maintain their sanity in the process.

The "more is better" approach to inventory management today is giving way to more sophisticated systems and procedures. The vanguards of cable TV’s materials management revolution are pushing for higher inventory turns, automated tracking systems and centralized control—sometimes relinquishing control of the process altogether—in an effort to reduce operating costs and increase efficiencies. But while most accept the fact that warehouse management practices must evolve to keep pace with the industry-wide technological and operational advancements, turning theory into practice presents its challenges.

Success through training

It seems as though no one has emerged unscathed from the merger-mania sweeping the industry. Cox Communications is no exception. Dick Wallace, Cox’s vice president of materials management, says his company has experienced firsthand the warehouse management challenges created by some of its consolidation activity, starting with its merger with Times Mirror in 1995 and including its recent acquisition of TCA Cable TV. For Wallace, however, these challenges have been a blessing in disguise.

"Recent mergers and acquisitions provide us new opportunities to learn other (inventory management) methods while we train and convert the personnel to our JD Edwards financial package," says Wallace. "Obviously, we encounter the occasional speed bump, but for the most part have been fairly successful converting these new properties."

Wallace cites training as the key to success in absorbing these new properties and the inventory management procedures and systems that come with them.

"Our biggest conversion issue is training, training and more training," says Wallace. "We have to convert all the new acquisition’s inventory to our part number system, perform a physical count of their inventory, convert any outstanding purchase orders over to our system and then train the local system personnel on our JD Edwards software package." Wallace says its training program involves a primary session and a quick follow-up tutorial 90 days later, a system he describes as very effective.

Empower your employees

This focus on training is shared by others in the industry as well. Randy Evans, the former director of purchasing at Harron Communications, stresses the importance of an empowered workforce.

"Unless we have a trained, literate, motivated, competent workforce and we give that workforce decision-making authority, we’re not going to get satisfied customers, and we’re not going to improve the bottom line," says Evans, who recently accepted a position as a rebuild project manager for a 1,400-mile rebuild in Harron’s Southeast Pennsylvania region.

He points to stock-outs as an example of how a trained warehouse management workforce can affect the bottom line.

"If somebody in a warehouse understands how that (outage) costs the company and how the company across the board loses money on a daily basis and explains that to them, they’re going to be more conscientious about running out of inventory or alerting somebody so (equipment) can be reordered," he says.

In addition to a trained warehouse staff, Evans also underscores the importance of cross-organizational communication. "Marketing drives purchasing which drives manufacturing. That’s the bottom line," he explains, adding that all groups must be held accountable and work as a team.

The standards dilemma

Evans also points to the need for industry standards concerning inventory management. "The barrier of all barriers is a lack of standardization in our industry generally," adds Evans. He says the lack of equipment standard-ization creates problems on the materials management side in systems and operations where more than one manufacturer is used for any single piece of equipment, a problem compounded by system swapping. You can’t just call an amplifier a 450 amplifier, for example, if you have different products from different manufacturers, says Evans.

Consider Adelphia’s acquisition of Harron. "You have different equipment, you have different systems, you have different part numbers, and a lack of standards, so you can’t just take what we have and roll it over into what they have," says Evans. "It’s going to take months."

Evans created a standards committee to help simplify materials management at Harron. He says the company staged a "dog and pony show," in which he involved all of the technical operations managers. They went around the country to visit manufacturers and get a firsthand look at everyone’s equipment, which gave the tech op managers detailed information they were not accustomed to receiving on a daily basis.

"So it helps in the decision-making process because you’re using empowerment there," says Evans. "It’s pretty helpful when you get buy-in from the people in the field, instead of corporate jamming down to the people in the field."

Evans says his committee now standardizes products across the board. "Right now, for three of our regions, we standardize on a hard-line coaxial cable, so that one type of cable (QR715) is used in all of our rebuilds," explains Evans. He says the company uses it for aerial and underground rebuilds in its Michigan, New York and Pennsylvania regions.

To help solve some of the standardization problems, Evans stresses the importance of using only a manufacturer’s part number for tracking and warehousing inventory because a distributor may place its own model number on a piece of equipment. Manufacturer part numbers are the only ones that can be cross-referenced in all databases.

A centralized approach

Bruce Mallalieu, the former director of purchasing at Rogers CableSystems and current chairman of the Society of Cable Telecommunications Engineers’ Materials Management Subcommittee, says the industry is waking up to the realization that inventory management practices of old cannot meet the demands of an increasingly bottom line-driven market.

"New material management practices are gradually developing in the industry, mainly because senior management is beginning to realize that there are significant savings to be achieved by reducing inventory and negotiating favorable supply agreements," says Mallalieu. He adds that the high cost of new digital equipment such as set-top boxes, and the value proposition they hold for pirates, is forcing the industry to improve its security measures for inventory handling and control.

To streamline materials management, Rogers has centralized its purchasing and inventory management. "We have two regional distribution centers and six warehouses," says Mallalieu. "Rogers is currently implementing a ‘tote-box’ delivery system that will gradually result in the closure of four of the six remaining warehouses within the next two years."

In this system, a technician carries in his vehicle tote boxes, into which he places any used equipment he removes from the network during the day. At the end of the day, he places these retrieval tote boxes into a locker and faxes a record of the items he used during the day to his distribution center.

The distribution center consolidates the technician’s faxes and then picks and packs the appropriate materials for each technician into a tote box for the following day. These replenishment tote boxes are then shipped out later the same evening to several locations. At each location, the truck driver has access to technicians’ lockers and empties boxes containing used equipment from the network and puts replenishment boxes into the lockers. The cycle is repeated the following day.

Mallalieu says this new system and other efforts to centralize control, re-engineer the supply chain and make inventory visible throughout the system have reduced inventory from a peak of $52 million to its current level of $12 million and have improved its inventory turns from 0.5 to between five and nine turns since 1996.

The Cox approach

Cox’s warehousing and inventory management is locally controlled by its systems using a JD Edwards financial software package that provides up-to-date data on usage, item quantities, excess available for transfer, total dollars and so on.

"The purchasing function is centralized in that all material requisitions are entered and approved by the local system, but the purchase order is completed by my Atlanta staff of buyers," explains Wallace. "We find this very successful, as we have gained both efficiencies through reduction of required buyers while remaining effective in providing the needed service to our end users."

To help the company realize cost savings, five years ago the company formed a Material Evaluation Committee consisting of system technical representatives and selected corporate engineers. The mission of the committee was to select vendors of choice for many of its material needs, including fiber, drop amplifiers, batteries, pole line hardware and so on.

"The purpose was to standardize our practices where appropriate, leverage our buying power and develop partnership relations with our vendors," Wallace says. "Since deploying this process, we have realized annual dollar savings of greater than $15 million."

Cox’s inventory measurements include annual turns of at least four, periodic "ABC" cycle counts and comparison to accounting values using absolute variance as the determining criteria, where each material type (A, B, C) has its own acceptable error goal from both a dollar amount and quantity variance.

Wallace says his operation faces two major challenges at the moment. The first is to become better at forecasting and matching outflows more closely to inflows. "We’re not expecting ‘just-in-time,’ as we’re not a manufacturer, and materials management is not our core competency," says Wallace. "What we do best is provide communications services to end-users and the associated customer service support."

Another challenge arises from the deployment of advanced services and the nonstock inventory, such as digital set-top boxes and cable modems, associated with these services.

"These appliances are tracked through our billing system from receipt from the vendor to assignment to a customer’s account," Wallace says. "Although this process is very secure and sophisticated, opportunities exist for error, which may result in lost appliances. It’s not unusual to have $1,000 worth of these devices in a customer’s home and many times that amount assigned to a technician. We must constantly check and review both our procedures and practices for any flaws."

As for the future, Wallace expects his company to continue to partner with its vendors and explore the Internet for online purchasing, including tracking of deliveries and forecasting requirements.

A helping hand

If inventory management is not a core competency for cable operators, why not outsource this function altogether? Some operators are doing just that and are finding assistance from distributors, consultants and other third-party service providers.

"Companies, especially the larger ones, are deciding they don’t need the hassle of trying to keep adequate inventory on hand to satisfy their customers," says Sonny Dickinson, vice president and director of cable TV sales for Power & Telephone Supply. "That’s where P&T steps in and is able to offer material management for them. The larger companies are wanting to focus more on the bigger picture, such as getting more business or streamlining their existing business or programs to become more cost-effective."

MasTec Management Team—the project management group of MasTec North America, a leading cable contractor—also offers its customers inventory management services.

Mac Zukoff, an MMT project director, says the value his company brings to a project is its experience and personnel. Moreover, when a project is completed, says Zukoff, the client does not have to worry about absorbing the materials personnel into its existing budget.

"Another challenge faced by an MSO (multiple systems operator) is the control of the inventory’s value," says Zukoff. "There is extensive effort required to order the material, track the inventory, accept delivery of the product and reconcile the inventory to the project. In utilizing MasTec, the MSO maintains control of the asset, while at the same time is not involved in the day-to-day details of the inventory process."

This saves the company time and money. Because MasTec also can provide all of the materials required for a project, timeliness of materials delivery also is ensured for the operator.

Evans says he sees a robust market for materials management training and project management as well. He currently is in discussions with Benchmark Engineering Inc., a project management and consulting firm, about a new business venture in the cable telecommunications market.

Rick Hamilton, president of cable TV distributor TeleWire Supply, says his company has been evolving to meet the needs of its clients and simplify the material management function. Hamilton says TeleWire is exploring electronic purchasing, Internet procurement, electronic catalogs, automatic replenishment and a number of other capabilities to help its customers fulfill their inventory management needs.

Get the facts

Wanna know how your systems and procedures stack up against others in the industry? The SCTE’s Materials Management Subcommittee currently is working with the Center for Advanced Purchasing Studies in Phoenix to produce a benchmarking study that compares the performance of several cable TV companies in the field of materials management. Mallalieu says the study will compare various metrics in the areas of purchasing, materials management and supply chain management. Results are expected later this year.