In the last decade, manufacturers have concentrated on lowering the purchase price of the items in their supply chains. To a large degree, they have succeeded. However, the pressure to lower costs has no abated. Additional unnecessary costs must be eliminated! Companies are continually seeking ways to cut non-value added costs in order to remain competitive and profitable in tough competitive markets. Millions of dollars in non-value added costs can be saved by reducing the total cost of overall past replenishment. One segment to examine is high volume, low cost parts, or ‘C-class parts', that represents 80% of the parts managed. Manufacturers have already worked with their suppliers to reduce fixed costs of these parts- the savings opportunity is in the management of these high volume parts.
The non-value added cost of acquiring C-class parts can be as high as 60% of the total cost of a part. In a large manufacturing operation with many high volume, low cost components, this can add up to millions of dollars. No matter what you are manufacturing, finding a way to decrease the replenishment costs for the C-class parts will add significantly to your bottom line. It is well worth your effort to develop a better methodology for C-class parts replenishment.
You want to be able to reduce both the time you spend managing the process and the paperwork and number of transactions. If you can do all of this, it will result in overall cost savings. At the same time, you want to maintain the quality of part and have the confidence that the parts will be where you need them, when you need them. To give you confidence, you need not only the ability to track actual usage, but also the visibility that the replenishment is occurring as planned. The key issue is how to effect this change.
Many companies employ the traditional MRP2, or ‘push', system for replenishment. When stock outs or shortages occurs, costs and inventory in the pipeline rise. Other companies believe outsourcing is a better process for parts replenishment. However, the outsource organisation has to reply on your forecasts, which means you will see the same number of forecast-based shortages and stock-outs. If the outsourcer implements a ‘pull’ system, you have limited visibility. If problems occur, you may receive no warning. None of these strategies result in cost savings in the management of parts replenishment or in inventory.