It’s the details that get you; not the big picture. The big picture, which includes 20 percent of the “A” items needed by an OEM to manufacture its products, gets all the attention. But, the 50 percent of “C” items consumed in the manufacturing process (representing as little as five percent of the total cost of goods) often are overlooked. That’s too bad, because for those with an average on-hand inventory of $1million there could be up to $100,000 in lost savings.
Customers at iPower New England with inventories in the $1million range have documented from $44k up to $104k in savings for those pesky “C” items. The examples I am citing have Point of Use ranges from 3,000 up to 15,000 items. The “C” item is not something to overlook.
The experts at APICS (The Association for Operations Management) have written that OEM’s typically find 20 percent of “A” items, which represent 80 percent of costs are carefully managed and ordered frequently to minimize investment. At the other end of the scale, the bulk of “C” items – up to 50 percent – are only five percent of the cost and are typically ordered only once or twice a year. It’s at this point that lack of attention can lead to loss of control.
The carrying costs for inventory can be enormous. Costs come from putting away stock, moving material in the warehouse, rent and utilities for square footage, insurance, taxes, cycle counting, shrinkage, and opportunity cost for the money invested in inventory. Typically, carrying costs can be two percent, which can be significant. For a customer with $1million spent on items for manufacture, if the inventory can turn 15 times and inventory stay below $66,000, the savings per year can top $100,000.
Read more about our iPower-VMI programs and how it can have an impact for you.
--------------------------------------------------------------------------------
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.
Monday, February 27, 2012
Monday, February 13, 2012
Your VMI program may be compromised if the part numbers on the bin don’t match
Over the past couple of years we have seen a growing trend among customers where VMI item part description does not match the component in the bin on the floor. This is easy to understand when you consider many of our customers have experienced acquisitions and consolidation of both product and manufacturing lines. Typically overloaded procurement and planning teams inherit new BOMs, part numbers, and vendors without the benefit of adequate part descriptions, where-used data, or usage data. While there are many reasons for inadequate information, our experience shows there are three main reasons:
1. Disparate operating systems limiting access to data. The data may be in the system or in reports but no one knows where it is or how to get it.
2. Poorly maintained item masters with on the fly engineering changes. How many times have you heard from the production manager or engineer, “Don’t worry, it’s just a simple fitting we’ll write the ECN tomorrow. Just get the part”!
3. In some cases, there are no part numbers or item masters for expensed items. The only information available is from Accounts Payable systems. In most cases, part descriptions on invoices are truncated. We have had to do countless invoice crawls though mountains of paper invoices to piece together part description and usage information. Now if you add this data problem to the need to respond quickly to copy exact, less than lead time orders from new customers; it is very understandable how a procurement team can be held captive by its suppliers. Procurement has to rely heavily on its vendors to know what is being supplied and how much is actually needed to support production.
How then does a procurement team in this situation ensure long run cost effectiveness of their VMI programs? What are the warning signs that the supplier has the upper hand?Here some important questions to make a quick diagnosis:
1. Are the part numbers on the bins the supplier’s part numbers?
a. If the answer is yes, then ask for a report cross-referencing their part numbers to yours
b. Ideally , Barcode labels should reference your part numbersc. If you do not have your own part numbers for the items in the bins the climb just got a lot steeper.
2. Assuming you have a part numbering system for expense items, who controls the system of record for part description?
a. It is very likely you both have systems of record for part description
b. It is time to compare description data
c. If you do not have manufacturer name and part number in your system, get it! Manufacturer name and part number are 2 of the 3 essential ingredients to long term cost control.
3. Who controls the system of record for transactional data (how much is being used and where is it being used)?
a. Most of the time we find it is not you!
b. Make sure you ask for detailed usage reports including ROP /ROQ and number of shipments per location.
c. You will soon find out how they are doing on managing your inventory!
If you get resistance to these very reasonable requests for information it is time to be concerned. After all somewhere in the not too distant past your organization must have provided the supplier with the information and/or guidance to what was required. You own your part description data; the supplier is only using it to provide you the quantity and location of where it is required.
--------------------------------------------------------------------------------
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.
1. Disparate operating systems limiting access to data. The data may be in the system or in reports but no one knows where it is or how to get it.
2. Poorly maintained item masters with on the fly engineering changes. How many times have you heard from the production manager or engineer, “Don’t worry, it’s just a simple fitting we’ll write the ECN tomorrow. Just get the part”!
3. In some cases, there are no part numbers or item masters for expensed items. The only information available is from Accounts Payable systems. In most cases, part descriptions on invoices are truncated. We have had to do countless invoice crawls though mountains of paper invoices to piece together part description and usage information. Now if you add this data problem to the need to respond quickly to copy exact, less than lead time orders from new customers; it is very understandable how a procurement team can be held captive by its suppliers. Procurement has to rely heavily on its vendors to know what is being supplied and how much is actually needed to support production.
How then does a procurement team in this situation ensure long run cost effectiveness of their VMI programs? What are the warning signs that the supplier has the upper hand?Here some important questions to make a quick diagnosis:
1. Are the part numbers on the bins the supplier’s part numbers?
a. If the answer is yes, then ask for a report cross-referencing their part numbers to yours
b. Ideally , Barcode labels should reference your part numbersc. If you do not have your own part numbers for the items in the bins the climb just got a lot steeper.
2. Assuming you have a part numbering system for expense items, who controls the system of record for part description?
a. It is very likely you both have systems of record for part description
b. It is time to compare description data
c. If you do not have manufacturer name and part number in your system, get it! Manufacturer name and part number are 2 of the 3 essential ingredients to long term cost control.
3. Who controls the system of record for transactional data (how much is being used and where is it being used)?
a. Most of the time we find it is not you!
b. Make sure you ask for detailed usage reports including ROP /ROQ and number of shipments per location.
c. You will soon find out how they are doing on managing your inventory!
If you get resistance to these very reasonable requests for information it is time to be concerned. After all somewhere in the not too distant past your organization must have provided the supplier with the information and/or guidance to what was required. You own your part description data; the supplier is only using it to provide you the quantity and location of where it is required.
--------------------------------------------------------------------------------
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.
Monday, February 6, 2012
Does Your V M the I?
You’re Thinking Lean: 1) Produce Only What You Sell; 2) Consume Only What You Need; and 3) Inventory is Evil
The question is, “Is your VMI supplier capable of meeting your requirements”? Is the Vendor really “managing” your inventory or are they just selling you inventory at their convenience?
We’ve come to expect certain benefits from VMI programs such as Vendor Consolidation, Volume Pricing, Local Stock, Onsite Resources, and reductions in: Inventory, Stock outs, Downtime, and Paperwork.
How many times have you launched a VMI program and found it did not produce the measureable results as promised? If you take the time to closely analyze the problem you will find the supplier was actually incapable of managing the inventory. The V is not M-ing
the I!
What are the symptoms of poor management, you might ask? What is the frequency of the breadman on site? How much churn of personnel executing the breadman role? How many bins that are obviously over stuffed or nearly empty? How many substitute components? How many missed delivery promises?
Or even worse, are all the bins overstuffed? Do you really need all the material? I like to call this type of inventory strategy: “some is good - more is better!” This style of inventory practice for expense and C items may have worked in the 70’s, but not today!
Successful VMI programs are very doable projects, but only with highly capable suppliers. It takes suppliers with many cycles under their belts designing, building, and managing Point of Use VMI programs that actually produce results. The devil is, as always, in the details: complete and accurate part description, accurate usage measures, knowing where and when the part is needed, etc.
In project management circles there is a well-known model for predicting project success called KEP. KEP is an acronym for Knowledge, Experience and Performance. It’s important to use KEP to scrutinize how the Vendor intends to manage your inventory. If your suppliers are not providing you with observable evidence of 1) how they define your parts in their systems (i.e. do they have an item master for each part on the program with unique re-order points and re-order quantities), 2) how they establish and more importantly refresh /adjust re-order point and re-order quantities, or 3) how they identify and communicate off balance sheet obligations; then you are talking to a supplier that simply will not produce measureable results. More on this in my next blog.
--------------------------------------------------------------------------------
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 www.iPowerNE.com.
The question is, “Is your VMI supplier capable of meeting your requirements”? Is the Vendor really “managing” your inventory or are they just selling you inventory at their convenience?
We’ve come to expect certain benefits from VMI programs such as Vendor Consolidation, Volume Pricing, Local Stock, Onsite Resources, and reductions in: Inventory, Stock outs, Downtime, and Paperwork.
How many times have you launched a VMI program and found it did not produce the measureable results as promised? If you take the time to closely analyze the problem you will find the supplier was actually incapable of managing the inventory. The V is not M-ing
the I!
What are the symptoms of poor management, you might ask? What is the frequency of the breadman on site? How much churn of personnel executing the breadman role? How many bins that are obviously over stuffed or nearly empty? How many substitute components? How many missed delivery promises?
Or even worse, are all the bins overstuffed? Do you really need all the material? I like to call this type of inventory strategy: “some is good - more is better!” This style of inventory practice for expense and C items may have worked in the 70’s, but not today!
Successful VMI programs are very doable projects, but only with highly capable suppliers. It takes suppliers with many cycles under their belts designing, building, and managing Point of Use VMI programs that actually produce results. The devil is, as always, in the details: complete and accurate part description, accurate usage measures, knowing where and when the part is needed, etc.
In project management circles there is a well-known model for predicting project success called KEP. KEP is an acronym for Knowledge, Experience and Performance. It’s important to use KEP to scrutinize how the Vendor intends to manage your inventory. If your suppliers are not providing you with observable evidence of 1) how they define your parts in their systems (i.e. do they have an item master for each part on the program with unique re-order points and re-order quantities), 2) how they establish and more importantly refresh /adjust re-order point and re-order quantities, or 3) how they identify and communicate off balance sheet obligations; then you are talking to a supplier that simply will not produce measureable results. More on this in my next blog.
--------------------------------------------------------------------------------
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 www.iPowerNE.com.
Subscribe to:
Posts (Atom)
