Remember the 1983 Wendy’s commercial that had an actor that said “Parts is Parts"?
We all knew it wasn’t true for chicken, so why do some people think “parts is parts” for purchased parts in manufacturing?
Well to be frank, most supply chain professionals do understand that purchased parts have many different characteristics that impact how they are managed. At minimum, most materials managers will assign an ABC classification to parts that may impact how they are planned and ordered, what safety stock is carried, how often the parts are cycle counted, what types of PO’s or vendor agreements are used and many other considerations.
While inventory velocity is not a new term, it is always good to begin such topics with a clear and simple definition. Inventory velocity is the speed at which the inventory is cycled in a given period for each item. Inventory velocity is the underlying measure to improve Inventory turns, which accountants define as follows:
Starbucks has found a hit with their seasonal pumpkin spice lattes. I should know. My discriminating and highly opinionated thirteen-year-old daughter Priscilla loves them. She likes the pumpkin spice lattes so much that she convinced a small platoon of girls to join her at the end of the first half day at the Starbucks just a short walk from their middle school.
Companies that use ERP and MRP systems are constantly looking for solutions to increase inventory turns, streamline the procurement process and improve supply chain agility. Many of these companies assume that the only way to reduce cost, lower risk or increase flexibility is to improve forecast accuracy. But various factors including customer demand variations, changing market conditions and questionable sales projections make it exponentially difficult to improve forecasting. One solution that most of these companies often don’t contemplate is moving away from a forecast based or MRP replenishment methodology to Electronic Kanban (eKanban) for high consumption items.
Have you ever taken the time to evaluate the current-state of your material procurement process? If you have, there’s a good chance that you found the process to be executed by people in departmental silos trying to manage several complex and interrelated processes. You probably also recognized the large amount of analysis work required to make the right purchase decisions and the almost exclusive reliance on email, phone and fax to communicate and track individual purchase orders from release through to receipt of materials. If you haven’t taken the time evaluate your current-state material procurement process, you should. You might be surprised at what you find.
While manual shop floor kanban systems are common practice within manufacturing plants,manual supplier kanban systems are much rarer. One of the primary reasons for this is the difficulty faced when trying to scale a manual visual kanban system beyond the four walls of the plant. However, the operational and financial benefits of supplier kanban are so great that manufacturing firms are now looking to electronic supplier kanban systems (a.k.a. supplier ekanban) as the answer to their supplier kanban needs. The following list was compiled from feedback by Ultriva customers over the past 12 years of implementing successful supplier ekanban programs.
In today’s environment streamlining the supply chain is a high priority for most manufacturing companies. Purchased parts are typically 60% or more of the manufacturing cost. This puts tremendous pressure on materials and supply chain executives to drive these costs down, while at the same time improve on-time delivery. A proven approach to achieve those goals is to improve supply chain collaboration.
Walk through any manufacturing facility and you’ll notice they all have the same type of charts displayed on the walls, bulletin boards, or electronic displays highlighting results of lean six sigma programs. The shop floor constantly runs Kaizens to improve factory-floor operations.
Surprisingly, most of the emphasis on the shop floor has been on streamlining production, relocating equipment, reducing production down time, and optimizing production capacity. Everything is focused on activities within the four walls of the factory shop floor. A very small percentage of these activities revolve around improving on-time-delivery, or improving supplier collaboration and material availability (i.e. processes that are occurring outside the facility).
This is a common dilemma that constantly plagues supply chain professionals. The traditional supply chain paradigm supports the belief that reduction of inventory will lead to increase in part shortages and subsequently lower service levels. This paradigm is constantly being reinforced by credible sources such as the Wall Street Journal as evidenced in this WSJ article by Mark Gongloff where he seems to suggest that more inventory = more growth. However, this is just not true….under the new supply chain paradigm!
