Tuesday, June 19, 2012

The Case of the "Just in Case" Inventory

(I've asked our Business Development Manager, Jeff Casey,
to share an interesting story about a customer we helped
that he was directly involved with.)

By Jeff Casey

We got to the customer site and issues of overstocked inventory jumped out at us the minute we began the plant tour. The customer’s floor setup was textbook cellular manufacturing and its vendor managed inventory program for fasteners was centralized by region meaning more than one cell could pull material from a kiosk of hardware. We call this type of configuration mother/daughter whereby the production cell employee fills small bins as required for use at his or her work bench. The fasteners were stored in bins on freestanding sheet metal racks with pitched shelves (technically known as a double-sided pick rack).

It didn’t take an Ernst and Young cycle count to realize that the yellow plastic bins were wildly oversized and overfilled for this low volume OEM. These bins were stuffed to the gills. If you had conducted a blindfold test asking someone to lift a bin and guess at the contents responses of solid bar stock or M80 grade concrete replete with steel rebar would not have been farfetched. They never would have guessed the actual contents: (one example) twenty thousand pieces of an M4 X 8 Socket Head Cap Screws 18-8 stainless steel topped with a quarter inch of dust. Can you say – over-inventoried?

Not only had their supplier over-inventoried them, the customer had enabled it, nay, encouraged it. Many of these sturdy shelf racks failed under the crippling weight of the jam packed little screws, nuts, and washers. The customer had quite an unusual response to their overstocked condition. Instead of rightfully demanding the supplier return and credit the material, a well intending but misguided employee repaired the racks by welding additional supports to accommodate the load. “Keep it coming,” they must have said, “Problem solved”.

To turn this problem around, we interviewed assembly technicians, extracted fasteners from the subassembly BOMs and combed through each cell to ensure we had gathered a comprehensive “where-used” profile. One hundred and fifty man hours later we were ready to embark on the program implementation. But before we could begin to build a point of use system we had to do a little housekeeping.

Step 1: Over four tons equaling $120,000 of excess fastener inventory was removed from the floor and moved to a centralized burn-down area.

Step 2: $68,000 worth of active parts were redeployed to the production cells

Step 3: $53,000 was deemed dead inventory and sold as scrap metal

Once implemented, our inventory specialist managing the new point of use system predictably began to notice a growing noise level on the production floor. While there we no material issues, fear, uncertainty, and doubt began to set in. As we had seen many times before, the assembly technicians had become addicted to the calming effects of piles of inventory. We took $120K off of the floor and folks began to get the shakes. It took a while but within a couple of months we had won their confidence and the noise level receded.

Today the program has grown into a widespread lean point of use replenishment system with easy to understand visual controls. Two important but not unexpected benefits grew out of the program implementation. First, it opened up twenty hours of free time for the fastener commodity buyer to focus on more strategic initiatives. He’s not chasing parts anymore and the customer is saving on all those UPS Red charges, too. It is still hard to believe that with $120,000 in excess inventory they still had stock outs!

Second, once the double side pick racks had been removed and the excess inventory was burned down enough floor space was opened up to accommodate a new production line the plant had been competing for.

While this was an extreme case of Just in Case inventory, many of our current customers had similar symptoms. If you think you may be suffering from a bout of Just in Case why don’t you give us a call!

The iPower Distribution Group of New England is a leader in VMI programs. iPower delivers the widest breadth and deepest supply of Tier 1 commodities in the Northeast. Our supply chain provides $800m annually of industrial components, supplies, and packaging materials. To learn more visit us at http://www.ipowerne.com.

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