Monday, October 27, 2008
Inventory Problem
The company I worked for this summer keeps a considerable amount of inventory. Most of their products are being shipped from China in containers and have at least a 3 month lead time. Their largest customer makes up about 60% of their revenue and takes up most of the run time during both shifts. The inventory is too large to keep in their main facilities so they have purchased extra space in a 3PL about 45 minutes from the plant. They have recently starting forecasting using a 4 month moving average which has done fairly well, but the purchasing manager isn't involved in many aspects of this process. Most of the managers and staff have worked there for more than 20 years and have become confortable in the way things have "always been done". I spent my summer trying to help them update their forecasting, reorder points, purchasing processes, unfulfilled PO's, counting inventory by hand and pretty much bring them into the 21st century. Does anyone else have any suggestions on what they can do to improve their practices?
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3 comments:
I may have some ideas, but I would need to know some additional information, like what is the product, how much inventory are they keeping, how much space are they leasing and how much does it cost, how much space is available at there facility, how many containers are ordered at a time, how often are orders placed? When it comes to production what are setup costs/times, how many different products are run and is there variety (colors, etc.)?
From class I would say to look at order qty, but you will have to add variables to the TC equation to factor in logistics costs, since you will get a break in full container qty. Is it possible to have the transportation company drop the containers and leave the inventory in them, this would prevent significant handling charges and potentially reduce leasing fees (usually you will have to pay for the container rental). We really need some additional information. If you can provide some, I am interested in continuing the discussion.
G8-- any details on the problem?
The end product are 3-ring binders so the materials being brought in are vinyl, metal rings, board,and clear covers. There are at least 20different ring sizes and shapes (round, oval, D-ring). Vinyl is mainly in black, white and light blue however, the company also makes custom binders which can be in any color, design, foil, etc.
The main problem I found was the inventory of metals that they ordered. They always maintained a 6month safety stock which was kept in the several leased warehouses (I believe there were 3). I was only able to view one warehouse which was leased for $3000/month. This price included loading/unloading and all shipments to their largest customer (A finished goods inventory is held in this facility as well as metals). There is no more room in the main facility and adding capacity would be too much of a risk if their #1 customer pulled out. This customer can give a 90 day notice and pull the plug on every order which would be devstating to the company.
There is a considerable increase in pricing occurring over the next 6 months. Orders are placed 6 months in advance to keep ahead of the price increases. For example, a shipment of metals ordered 6 months ago will just now be put into production and the customer will be given the lower price from that time period. Orders are placed monthly to a 3PL who gets a container price from China. They have tried to buy directly from China, but can't without the 3PL's permission which they won't give.
Machine setup takes an average of 5-6 hours so production schedules are made out at the beginning of the week to maximize the machine output with as little down time as possible. Forecasting is only being made with a 4 month moving average. There is a serious lack of cross-functional communication and a strong resistance to change.
Thanks for the help!
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