Featured Engagement

MANUFACTURING STRATEGY AND INVENTORY CONTROL

A client in the manufacturing industry was concerned that they were operating far above the lowest potential cost production level. The parts manufactured and their components were extremely valuable and inventory holding costs often ran very high.

The complexity for decision-making was due to the excessive costs associated with stock out, which could run into the millions of dollars if extended downtime of their customers' operations resulted when parts were not available. Balancing inventory and production costs with the costs of stock outs was a major operational hurdle for the organization, as their customers placed increasing pressure on both price and performance.

Another unique challenge to operations planning existed due to the fact that a large proportion of the final goods inventory was filled with refurbished components. Since these raw inputs for the refurbishing process came from the parts they were replacing for their customer, there was a strong link between the demand for parts and the supply of raw materials for refurbishing. Since the refurbishing process was, in many cases, extremely lengthy, this link provided a significant planning challenge.

There were two main internal issues, which combined together made the operations plan and inventory levels extremely difficult to manage. First, there was a lack of quality information available for managers to support the manufacturing and inventory decisions that needed to be made.

Second, the manufacturing and refurbishing processes were extremely long, so that the manufacturing planning needed was completed well in advance of realized demand in order to ensure that adequate inventory supplies were kept on hand.

To address these issues, an RPO consulting team worked with client management on three parallel initiatives. First, a process review and bottleneck analysis was conducted which provided the foundation for process streamlining and transformation. This analysis involved developing a detailed understanding of the "blank-space" that existed in the current processes and designing strategies to manage the task-time to blank-space ratio.

Second, a comprehensive forecasting model was developed to predict future demand and determine the necessary inventory levels for all of their components. The forecasting methodology combined internal and external information to predict the demand - where demand was due to both regularly replaced parts as well as shocks caused by unpredictable events. This process provided a quantitative framework to base inventory level decisions.

Third, an operational reporting tool was designed and implemented to report key statistics to operational managers. These measures supported critical decisions surrounding work prioritization and planning. By providing targeted data and information at the click of a button, managers were able to make operations planning decisions quickly and more effectively.

These three initiatives provided the tools necessary to improve the operational planning and inventory management process. Through increasing the understanding of internal processes, quantifying the market demand, and utilizing targeted information to support decision-making, the operational health of the organization was improved significantly.