By Janet Hessler

OUT OF STOCK Discovering innovative solutions to inventory problems

B Jan t H ssl r

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A ICS a Ap 2 12 27

My company manufactures data networking solutions and accessories, including items such as connectors, plugs, and cables. Recently, we experienced an unexpected opportunity, which led to signifi cant operational enhancements in our acces-sory handling processes. Th e opportunity arose from a tradi-tionally unlikely source: confl ict—the sort of confl ict that exists between departments at nearly every organization.

It began on a day like any other, but then the unthinkable happened: Th e stock of a particular connector became fully depleted. Th is meant that a critical customer shipment was delayed until we could expedite a supplier delivery. Aft er probing into the root causes, we eventually realized the failure was caused by a lack of communi-cation between the marketing and engineering departments.

Marketing staff would iden-tify shippable accessories (which are bundled and included with a base product) in shipping notes. Meanwhile, engineering controlled the product design and documen-tation. Th e two groups initially agreed on what accessories should be provided to the customer; but, over time, product notes expanded to include accessory items that lacked documentation, which brought about hidden costs and understated system demands.

Clearly, something needed to be done. Company leaders created a cross-functional team tasked with fi nding a solu-tion to reconnect the planning and end use of accessories. I contributed to these eff orts as the representative for mate-rials. Th e following actions occurred based on the team’s decisions:• Marketing relinquished control of the text notes for

accessories and coordinated those items’ needs with engineering.

• Information systems improved the sales order system and shipping documents to receive accessory requirements from the parent product’s bill of material (BOM) instead of text notes.

• Engineering updated product BOMs and assigned a unique prefi x to each accessory item, including all acces-sories deemed applicable by marketing.

• In materials, fi nished goods stock clerks picked and pre-pared products and their accessories using the improved shipping forms.

A chance for changeTh e fi rst wave of improvements eliminated marketing’s data entry and manufacturing’s handling of accessory items. Correcting those highly visible process failures ultimately fi xed accessory demand and usage, and managers were pleased with the results and ready to move on to other priorities. But I wanted to take our handling processes to the next level. Further, the handling of accessories begged to become even more streamlined.

Figure 1 illustrates our accessory process flow at this time. Accessories were received at the dock, inspected, and transferred to the raw materials stockroom located on the other side of the building for release with production kits. Although accessories were now bypassing manufacturing, why not deliver them directly to finished goods?

After inspection, accessories were moved to the raw materials stockroom, then transported to finished goods (and restocked) when kits were released to manufacturing. When a product was ready to ship, the accessories once again were picked and packaged to match the shipment quantities. The duplication of effort involved was obvious.

My personal goal became to cut in half the handling of accessories—thus streamlining the process to stock, pick, and package only once.

Following are the lessons I learned while making this hap-pen, as well as the steps it took to get where we are today.

Consider point of use. Aft er accessories were brought to the raw materials stockroom, they just sat there until they were needed by fi nished goods. Th e logical solution is to bring them directly to fi nished goods aft er inspection. Th e material fl ow for accessories now diff ers from that of com-ponents needed for production, but it puts accessories where they are needed. A separate path to fi nished goods reduces the transportation route within the building and eliminates the waste of duplicating stocking, picking, and packaging.

Coordinate material requirements planning (MRP) practices. Supply and demand for accessories will vary based on a company’s shipping methods. We confi gured our MRP system to use BOMs to link accessories to their parent products, which also simplifi es the customer order process. Th is setup is valuable to marketing—they liken it to purchas-ing a laptop computer with an included power adapter. Th e planning improvements inherent in the consolidation of the accessory stocking locations keep our inventory lean. Th ey also provide better visibility into shipping dates, instead of relying on the kit release dates that used to drive demand.

Get smarter about inventory. Accessories were not kept in a perpetual stock location, as they were considered part of the parent product’s inventory value and count. Th us, fi nished goods needed ample accessory quantities on hand to accommodate the shipments of parent products. Now, accessories are physically and continuously stocked as raw

We eventually realized the failure was caused by a lack of communication between the marketing and engineering departments.

40 March/April 2012 | APICS magazine 28 Ma ch Ap i 01 A S magaz n

materials. Th e stocking duplication, while cumbersome, lets us separate accessories available for kits from accessories assigned to work in process and fi nished goods.

Th is setup does demand a detailed analysis of the quantities of accessory items available. Finished goods stock clerks could manage the calculations manually; but, adding a new task of this magnitude to the group’s responsibilities off sets the effi -ciency improvements. Instead, stock clerks correct diff erences between physical and perpetual counts, identify root causes of discrepancies, and verify inventory accuracy through cycle counting. With improved documentation, planning, and inven-tory reporting, we maintain a much leaner accessory inventory level while reducing the risk of stockouts.

Update approaches to lot control. Th e most complex, and possibly the most important, aspect of changing our accessory process was addressing our commitment to component fi eld traceability. Previously, we recorded a manufacturer’s production lot upon receipt. All components then were issued to work orders by lot. Th is should require knowing exactly the manufacturer’s lot of accessories shipped; but, oft en, it was not known because the fi nished goods stock clerk couldn’t see what accessory lot shipped with a particular product. Th e accessories were separated from the production work order and shipped on a fi rst-in-fi rst-out basis, regardless of the parent product’s work order.

I considered three approaches for lot control. The first was to remove lot control flags from accessory items and replace them with floor stock flags. Work in process would be removed from inventory reporting require-ments, simplifying the calculation to determine the physical count in the stockroom, which merely would be quantities assigned to finished goods combined with the perpetual stock quantity. This would automate work orders and reduce stockroom data entry responsibilities. Unfortunately, removing the lot control flag removes an accessory item’s inspection requirement upon receipt. As all accessories need to be inspected, we could not eliminate the lot control flag.

The second approach I considered was the other extreme—imposing full lot control. This would limit our exposure in the event of product failures in the field. Finished goods personnel would issue accessory items when parent products were completed to stock. Related accessory items would be stored with appropriate parent products, and the general stock physical quantity would match the perpetual quantity. This would simplify inven-tory reporting requirements even further by eliminating the additional reporting needs. However, this method would require significant resources to stock accessories

All parts received and inspected

All parts stockedin raw materialsstockroom

Work order kit issued/accepted, picked, and packed

Accessory brought to fi nished goods stockroom

Accessory stocked in fi nished goods stockroom

Remainder of kit released to manu-facturing

Parent product assembled and tested

Parent product completed to fi nished goods Parent product

held in fi nished goods until shipment

Parent product and accessory picked, packed, and shipped

START

END

Figure 1: Initial accessory process fl ow

All parts received and inspected

Accessory stocked in fi nished goods stockroom

Accessories issued to work order

Other components stocked in raw materials stockroom

Work order kit issued/accepted, picked, and packed

Parent product completed to fi nished goods

START

ENDParent product and accessory held in fi nished goods until shipment

Parent product and accessory picked, packed, and shipped

Figure 2: Final accessory process fl ow

END

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A ICS a Ap 2 12 29

with corresponding finished units and record transactions that were previously automated, making it rather inef-ficient. Moreover, it is unlikely that accessories actually caused product failures in the field.

I discovered a third approach to lot control in the system soft ware literature. Lot level—a subcategory of lot control we had not previously used—enables us to defi ne the stock-ing point where lot control is no longer required. Lot-level functionality combines the best of both worlds for accessories.

After accessories were brought to the raw materials stock-room, they just sat there until they were needed by finished goods.

Maintaining lot control via receipt drives our inspection require-ments and provides assurance that the received item meets our inspection criteria. By eliminating lot control through lot level at the back end of the process, we can treat accessories as fl oor stock. Th us, accessory issue transactions automatically record upon completion of the parent product to fi nished goods. Th e implementation of this method is in progress.

Th e failures we discovered in our marketing and engineer-ing product documentation practices shined a spotlight on a handling process that was in dire need of attention. Our ultimate solution, which can be seen in Figure 2, eliminates duplications by stocking all accessories in fi nished goods. Th e original process dictated we treat accessories as we do all production require-ments. In reality, they warrant special care and attention and are a key factor in customer satisfaction. Th e lessons we have learned that stemmed from confl ict have streamlined our handling pro-cesses, boosted our quality, and improved our overall organiza-tional eff ectiveness.

Janet Hessler is materials manager for a manufacturing company

in Long Island, New York, and a student at St. Joseph’s College in

Patchogue, New York. She may be contacted at jhessler@student.

sjcny.edu.

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