Want to know how you can carry little inventory and still support your maintenance projects? Drumroll please.
Through proper planning.
On the eve of a particular Monday I received a “list” of a 100 line items in the form of a good ‘ole consumable / expendable RFQ. You know, the sealants, wire, tape, nuts and bolts type.
Myself and the sales support team began processing the RFQ but something was off.
Something wasn’t right.
Each line item I looked at was ordered last quarter.
I began to wonder why this particular airline was re-creating a process they had already completed the prior quarter.
My mind immediately envisioned a simpler way.
Through proper planning and communication this exaggerated process is 100% avoidable. [CLICK TO TWEET]
After they purchased this requirement “again” they spent an additional $10,000 on labor, processing, shipping and other nuances.
No prices increased and some items had lead times that they had to accommodate.
With proper planning they could have saved $10,000, increased efficiency and avoided stock out delays.
Stock out delays result in increased purchases which leads to excess inventory do to “trying” to avoid the issue in the future.
An inefficient purchasing system
Sending out RFQs to the entire world is a common practice but is it the most efficient?
Industry norm of the send RFQ and watch the flood of quotes come in is okay, but it isn’t efficient.
And it isn’t a viable way to increase vendor reliability as the floodgates of various sources rush in.
This creates improper forecasting, stock buildup, and additional costs to your procurement process.
By the time you receive the quotes, process them and cut the PO, the order cycle has been dramatically extended.
This is especially true for repeat purchases where 95% of the processing time could be avoided, saving money, time and excess stock through vendor demand forecasting.
9 ways to reduce stock and increase order efficiency
Holding onto stock isn’t your primary goal.
It’s not what gets you up in the morning, what you think about during the day or what pays the bills.
Simply put, it’s not your profit generating activity.
Here are 9 ways to reduce your stock and increase order efficiency:
- Use vendor managed inventory & vendor stocking programs: With the right incentives, letting VMI suppliers take the responsibility for replenishment of your inventory, because of their visibility into both their own inventory and your demand data, will always reduce your inventory. Primarily used for maintenance inventories VSPs require your supplier to commit to an extremely high service level for delivery of specific products within a fixed time at a pre-defined mark-up over cost. VSPs can reduce or eliminate inventories for slow-moving products.
- Reduce lead times: When supplier lead times are reduced below the required lead time you set it’ll help remove the requirement to hold much stock, especially consumables. Cutting lead times in half will reduce safety stocks by about 30% for the same availability.
- Improve reliability of supply: Unreliable supply is one of the reasons for holding safety stocks. If delivery is guaranteed on the due date then safety stock can be reduced what's needed to cover common-cause variability. A good start is sharing demand, forecast and stock positions with suppliers. When there’s heightened transparency of information throughout the supply chain it’ll improve reliability and mitigate Bullwhip/Forrester effects.
- Order more frequently: This reduces cycle stock and will often cut it in half. There is a cost as each order will require additional administration overhead and a labour cost to receive the goods. The former can be mitigated with automation and management by exception or through better planning in a Just In Time inventory program.
- Expedite more effectively: Solving supply chain failure quickly will undoubtedly improve service. We’ve all had AOG nightmares. Strong relationships with suppliers means that your expediting process will contribute to 1% point to availability. Without that, availability would have been at 95% – or put another way, good expediting reduced service failure by 20%.
- Forecast more accurately: Better forecasting means lower safety stocks and higher levels of availability. It also means a reduced exposure to excess and obsolete stock risk (a large contributor to your holding cost of stock).
- Liquidate: There’s always a short-term price to pay on the profit and loss (P&L) and the balance sheet, when it’s clear that the value to be gained through liquidation is greater than the most optimistic estimate of future gross margin from conventional product sales, then liquidation is the best decision. You are not in the conventional product sale business so liquidation of absolute or unnecessary stock is highly optimal.
- Strangers strategy: Where there’s a lot of slow moving product in the range, seriously addressing the fulfilment rules of your maintenance activities can make a big difference. Integrating closely with suppliers may enable a back-to-back ordering process and removes the need to hold stock altogether. A close relationship with your supplier is crucial.
- Change the network configuration: The general rule is that the safety stock in the system is proportional to the square root of the number of locations. A hub and spoke approach. Apart from this, understanding the relationship between main store availability and satellite availability is vital. This allows the right balance to be struck between stock in different tiers of the supply chain. Fixing a typical imbalance could reduce stock by up to 10% overall.
Whether you choose one of these strategies or all 9, your primary goal is to reduce stock and increase efficiency.
I challenge you today to implement one and began to make a shift of mass RFQs to structure and deliberate action to your RFQs.