Change Solutions Group

		Inventory Management Practices Client A $12 million custom design engineering and manufacturer of embedded systems. The company was experiencing rapid growth through additional custom engineering projects and the expansion of their alliances with both local and off-shore assembly houses. Business Issue This rapid expansion of design and manufacturing activity was creating growing pains in several areas of material management; (1) the material stockroom was too small to handle the current volume of parts, (2) a physical inventory was taken once a month in the manufacturing stores areas, and (3) stockroom procedures allowed both manufacturing and engineering personnel to enter at will for needed inventory. In addition, raw material part numbers could be common to both manufactured BOMs and engineered prototypes; and purchase order requirements relied on the integrity of the inventory management data base. Part shortages created delayed shipping and added cost for expediting the needed material. Material management became key to both on time delivery of manufactured demand and engineered prototypes and insuring the integrity of accurate cost history. Solution The client acknowledged that a complete review of inventory management procedures was necessary. This work was performed in 4 phases. Phase 1 - Securing the materials stockroom was accomplished by locking and limiting access, having a designated employee in charge of physical receiving and issue activities as well as daily posting of all inventory transactions. Before additional space requirements were examined, a complete physical inventory was taken to determine actual quantity by part number. On-hand inventory was then compared to current BOMs, to determine whether all inventory supported current demand. Obsolete inventory was removed from stores and financial records. Phase 2 - Expansion of current raw material stores and relocating finished goods enabled proper grouping of like materials and the inclusion of palletized material to be located inside the secured stock room. Phase 3 - Review of inventory transaction history to determine consistency of actual material movement with inventory transaction postings into the inventory management database. Inventory transaction codes were simplified and new inventory procedures were put into place, including identification of material transfers into and from engineering projects. Company personnel were trained on the adopted inventory procedures. Phase 4 - Cycle count of raw material inventory was adopted, replacing the month-end wall to wall counts and associated manufacturing down time. Raw material was divided into 3 categories, with 85% of the value and most common used parts scheduled to be counted more frequently. Finished Goods and work-in-process quantities were still counted at each month-end. Outcomes Securing the materials stockroom and putting procedures in place to maintain the integrity of the inventory had three very definite rewards from the clients perspective. The first being, timely shipping schedules could be accurately forecasted to customers and met because of the improved inventory accuracy. The second was a dramatic reduction in daily production shortages and associated expedite fees. The third was the elimination of not only month-end physical counting of the raw materials stores but a buy-off by the external auditor and eliminating the year-end physical count of raw materials. The overall inventory accuracy increased to 96%, up from 80% when the project began. back to Resources
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