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.

VMI Programs Gone Awry?

Early and in different times in my manufacturing career, I reported to two senior executives that were responsible for plant operations. While they were different in just about every imaginable way, they shared at least this one thing in common. They were both taken-in by suppliers providing parts and supplies using VMI programs. Excess inventory and price gouging were the culprits in both scenarios.

One of the two was so incensed by the experience that years later he was still personally reviewing all the requisitions for expense and C items. It was not unusual to get a call from him in the early morning hours challenging you about the need for a box of screws, wipers, or a desk chair.

In both cases, these senior executives ran into vendors selling inventory instead of vendors managing inventory. How then did these vendors selling inventory get away with it for prolonged periods of time?

Here are two tell-tale signs of a VMI program gone awry:

1. If it ain’t broke don’t fix it. Bin Inventory has a direct relationship with production floor noise level. It doesn’t take a wily vendor long to understand the culture of your manufacturing floor. Topping off bins is a much less risky activity than suffering any noise from the floor. If the floor is too quiet and the bins appear too full, it is time to get the vendor in your office to explain how ROP and ROQ is calculated and what turns they are achieving at the bin level.

2. Lumpy Gravy. We won’t accept it on our turkey dinners but we will readily accept a weekly lump sum invoice for thousands or even tens of thousands of dollars on a regular basis. Even the most jaded accounts payable manager can be lulled into a false sense of security by the monotonous beat of a constant dollar value week after week. Gone unchallenged the lump sum invoice is a breeding ground for untethered price increases. If the vendor is worth his/her salt they will have operating and financial systems that enforce contract price agreements.

What then are best in class approaches to ensure your VMI program stays in control?

1. Create Point of Use instead of Centralized Inventory Locations

2. Lean replenishment systems should be synchronized to the demand at the production cell level

3. Create easy to understand visual controls to signal inventory replenishment

4. Demand consistent application of the above three steps to keep the program simple plant wide.

5. Demand quarterly inventory turns report at the Bin level

6. Require Monthly PPV reports to a baseline cost based on shipment activity.

Don’t let your VMI go awry.

Thinking Differently About the Supply Chain Has Led to Innovation and Customer Success

As an OEM, you face the challenge of managing lots of high volume low cost parts. Up to 50 percent of the items used in your manufacturing process may only represent five or 10 percent of total spending. Yet, these items are vital to a successful production floor.

At iPower, we treat these high volume low cost parts with the same importance, intensity, and innovation as you do managing the “A” items. In fact, our approach is to challenge the status quo. We believe in thinking differently to produce unparalleled results. Our record over the past 20 years shows that our approach has worked.

The supply chain that iPower represents currently serves a wide range of OEM’s, including those in semiconductor, flat panel display, solar photovoltaic, medical, wind turbine and other cutting-edge automation, vacuum solutions, and marine at Point of Use. To accomplish this, iPower has assembled a broad-based team of industrial distributors with the widest breadth and depth of industrial components, packaging, and supplies in the region. The companies that make up iPower Distribution Group of New England represent 1.2 million items; $140 million in inventory; and $800 million in sales. That’s a lot of capability.

And here’s the best part: At iPower, we do not markup any prices on any Tier 1 components, packaging, or supplies. Nor do we charge a handling fee, software fee, or user fee. We have no fees of any kind. In addition, in every contract we have a price optimization clause guaranteeing competitive prices. It’s more than a claim: it’s a fact. Our 20 years of delivering supply chain solutions have documented the results. Thinking differently has helped our customers get the edge on the competition and to achieve profitability.

Our industrial supply chain footprint includes the following major categories:

· Electronics
· Fasteners
· Industrial Automation
· Industrial Supply
· Motion and Fluid Control
· Packing
· PVF

You can read a more comprehensive list here of products and materials that we bring to the supply chain and learn more about our capabilities. We would be happy to share our thinking as it applies to your requirements.

--------------------------------------------------------------------------------
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.

A Washer Saved is a Million Dollars Earned

You have embraced lean; you have implemented manufacturing cells, and established pull systems for smooth demand/high repeaters. But what about the excess “C” and Expense item inventory that seem to be building up in the cells or in the corners of your warehouse as the design of the equipment or production mix changes?

Your first inclination may be to sort it by material type and sell it for scrap just to get out from under foot. The thought of searching for other uses for the parts is overwhelming. It is very probable the excess parts are called a different part number in another manufacturing cell(s). Before you jump to conclusions see how one of our top accounts partnered with us to provide a big financial return by managing the small things.

Coping with “Not Required” Parts
Our customer produces a broad mix of low volume, very large, complicated, and expensive equipment that requires thousands of small electro-mechanical components. The shifting tide of production levels and model mix has forced them to learn how quickly and efficiently to teardown manufacturing cells and reconfigure them for the next repeat or new product. Predictably the wheels fly off the cart when it comes to identifying and moving the hundreds of “not required” expensed items out of the cell and the new items in. It’s here that our unique Point of Use inventory system made a million dollar difference for this customer.

Introducing iZap as a Solution
Through implementation of a Point of Use inventory system, using our “iZap” bar code program, we were able to address our customer’s challenge. Every one of the parts we supply to our customer at point of use has been crossed referenced to the manufacturer’s part number. It is not uncommon to find six unique customer part numbers calling for the same Parker #13493-8-8, which happens to be a ½ Inch Fitting. It is also not uncommon to find that the part is used in upwards of 40-50 manufacturing cell locations. Once the customer decides to reconfigure a manufacturing cell we immediately deactivate the part in the iZap system as well as all its brothers and sisters on the production floor. Therefore, the next time a reorder point is hit for any of the sister bins our system points the material handlers to the burn down location to retrieve the part for rapid replenishment. Once the inventory in the burn down location is depleted the system reactivates all the brother and sister bins for discrete reordering and replenishment.

Let Demand Drive Replenishment
Here is a helpful hint we learned with the customer along the way. Since demand for these parts in other production cells is hard to predict there is little to no value in re-distributing the excess parts to the remaining brother and sister bins. Better to just identify the burn down location and let the demand for the part in the active cells drive replenishment activities rather than compound potentially slow moving inventory with wasted motion.

Over a seven year period our customer has documented a cost avoidance (not buying parts that are already on hand) of over $1million. When it comes to optimizing your investment in floor stock inventory, we’ve demonstrated we can help.

--------------------------------------------------------------------------------
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.

It May Be Time to Question How Effective is your VMI?

Are you satisfied with your current Vendor Managed Inventory Program (VMI)? Do you have concerns about the whether or not it is adding any value to your organization? Here are seven questions you can ask yourself the next time you walk past a Bin on your production floor:

1. If 50 percent of my part count can be replenished through VMI, how many are on the current program?

2. Am I dealing with fewer suppliers today than before we started the program?

3. Is the VMI Supplier better at their business then the best of the suppliers we consolidated and no longer have relationships with?

4. Did I optimize price on the component based on the how I was purchasing before? Did I get any synergy in the aggregation of demand from the consolidation of like suppliers?

5. Is my inventory lower today in my plant with multiple points of use then when I had a single location and issued parts?

6. Am I getting any cost reduction ideas from the VMI supplier to help my business?

7. What are my buyers doing differently today now that they no longer have to manage all these Parts, Purchase orders and Expedites?

Now that you have had a chance to stop and think about it don’t you think it’s a good time to take a new look at an old program?

--------------------------------------------------------------------------------
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.

Why VMI Solutions with Integrated Supply Chains are Better For You

You want to expand your vendor managed inventory (VM I) program but you have a wide variety of component types that need to be added to the program. Your current VMI supplier for hardware is a reliable supplier but they don’t carry the other component s you really need:

1. Do you work with the current supplier to take on new lines?
2. Buy from other distributors?
3. Do you create a second and maybe a third VMI program to cover all your bases?

This a common problem many purchasing departments face when the success of the business drives the purchasing activity for “C” and “expense” items beyond the capacity of the team. What many procurement professionals do not know is that there is a third alternative. The third alternative is a VMI solution using an “integrated supply chain.”

You may be wondering what an integrated supply chain is and how it enables the VMI solution provider using it to outperform a conventional single commodity VMI program. Let’s look at it more closely.

Integrated Means Linked
An integrated supply chain means the wide variety of part types, i.e., Hardware, PVF, Electrical, Electronic, Bearing and Transmission, Motion Control, and Fluid Power, etc., sitting in bins on metro racks on your production floor - or on shelves in your MROP cribs - are linked to bar codes and connected via the internet to databases housing item masters and servers routing replenishment orders to approved Tier 1 suppliers. This configuration enables a one-to-one business relationship wrapped around a one-to-many supplier replenishment process.

What this means to you is you no longer have to make the tradeoff between extending a single commodity supplier like the reliable hardware supplier trying his/her best to also provide electrical parts, which by the way will cost you a premium to do so or creating multiple VMI programs throughout your production and maintenance facilities.

The Six Compelling Reasons
Here are six compelling reasons to investigate VMI programs with Integrated Supply Chains.

1. Because the “spend” for integrated solutions is higher than single commodity solutions the business relationship between the two parties is better balanced.

2.The integrated suppliers carry approved lines for the commodities they represent. You will never pay a markup because they had to go somewhere else to get the part.

3. They carry inventory for the lines they support so rapid replenishment is expected.

4. They are experts in their fields and provide technical support should the need arise.

5. You will have only one point of contact managing one highly scalable VMI process within your four walls, which means closer communication, less complexity, less confusion, and better results.

6. Because a high volume of transactions from many suppliers can be handled through the VMI program, the monthly summary invoice dramatically reduces the Procurement and Accounts Payable time required to review and approve payment.

When it comes to multi-commodity VMI programs, make no mistake about it. VMI solution providers with integrated supply chains provide lower cost component and supplies and simplify business processes without sacrificing quality or service levels.

--------------------------------------------------------------------------------
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.

The "A-B-C's" of Inventory Control Often Focus on the "C" Items

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.