Discreet Manufacturing Case Study
Problem: A mid-sized manufacturer of custom, make-to-order office furniture had achieved enormous commercial success by doing for office furniture what Dell had done for personal computers. However, this firm’s operations were located in one of the highest cost regions of the US. As management searched for ways to improve efficiencies they noted with alarm that their annual inventory turns were a mere 15 – not bad in some industries but quite poor when compared with Dell’s 50+ inventory turns each year.
Solution: The manufacturer hired Keough Associates to analyze their current approach to inventory segmentation, to evaluate its current procurement processes, and to assess its IT infrastructure to determine the root cause of their poor inventory turns and to recommend an approach for improving the situation.
Keough Associates began by sitting with the company’s procurement agents and observing their procurement processes first hand. We discovered that the procurement agents followed 12 distinct procurement processes; which process was employed depended on a number of factors including the urgency of the requirements, the type of product being order, the supplier who would be filling the order, and others. The agents also used a wide variety of methods for communicating orders, order changes, and determining order status with suppliers: phone, fax, e-mail, snail mail, even a few supplier web portals. None of the purchase orders generated in the firm’s ERP system was sent electronically and automatically to its suppliers.
Needless to say, the procurement process was time-consuming and error-prone. And, because procurement agents did everything possible to avert production line-stopping shortages, the procurement agents would often “follow-up” with their suppliers, sometimes multiple times in a day, to confirm product availability and order/shipping status.
Keough Associates reviewed 12 months’ worth of usage and cost data for every item in the manufacturer’s inventory and conducted a volume, value, and variability analysis for each. We then developed a matrix that separated each SKU into one of nine categories, ranging from AAA for a high-volume, high value, low variability SKU to CCC for a low volume, low value, high variability SKU. For each SKU class Keough Associates recommended a procurement practice appropriate to the usage attributes of each, ranging from blanket PO to electronic Kanban to a best practice traditional PO process. We also recommended that the firm implement barcode scanning at receiving, a WMS (their ERP system had limited WMS functionality), and improvements to its ERP system and receiving process that would improve the firm’s ability to view inventory levels in real time. Finally, we designed a supplier management program which would establish and track key supplier metrics to measure performance, especially around consistent fulfillment of perfect orders (orders delivered complete, on time, to the right place, undamaged, and with accurate documentation).
Result: This manufacturer has selected a WMS solution and is currently in the process of implementing our other recommendations. While it is still too early to have quantifiable results from this effort, procurement reports spending less time on each order and experiencing fewer errors now that their suppliers act as more engaged and proactive supply chain partners.