August 10, 2016 / best practices, continuous improvement, Cost Management, lean manufacturing, LIT, material costs, resource allocation
For any industrial metal-cutting operation, inventory management is an ongoing challenge. Ensuring the right amount of inventory in-house while simultaneously working to reduce overall operating costs is not an easy task.
This has been especially true in recent years. As we reported here in our annual industry outlook, high inventory levels were a major challenge for fabricators in 2015.
As a result, many fabricators are now re-evaluating their inventory management tactics, and more and more shops are moving away from holding large amounts of inventory. According to industry survey results published by The Fabricator, a little more than half (54 percent) of the respondents said they hold less finished-goods inventory today than they did three years ago. “Custom fabricators don’t want to drown in inventory,” states an article from thefabricator.com. “In fact, for fabricators having customers requiring them to hold finished-goods inventory, those inventory requirements aren’t as high as they once were.”
Many metal-cutting shops are also starting to use more remnants, a strategy often known as “pick for clean.” As explained in the white paper, The Top 5 Operating Challenges Facing Fabricators’ Metal-Cutting Operations, this tactic “promotes a cleaner inventory, which makes shops safer, more productive, and profitable.”
Of course, there are many strategies shops can use to better manage their inventory. In fact, supply chain expert Lisa Anderson says she could write 100 articles on the subject because there are so many ingredients to an effective inventory management system. However, Anderson does say there are three key questions every manager should address when it comes to inventory:
1. Do you have the right talent? “It is surprising how often this question is overlooked, yet it is #1 to achieving bottom line results,” Anderson writes. “Although inventory could be considered a ‘basic’ fundamental skill and is often on the resume of every supply chain and operations job applicant, all talent is not created equal.”
She also says there is vast confusion surrounding inventory skills and which skills are needed for which job functions. For example, do you need inventory control? Inventory accuracy? Inventory planning? Supply chain planning? Inventory tracking? “Most of these roles require far more than inventory expertise,” Anderson explains. “They require the right combination of analytical skills and communication skills.”
2. Is your system working? This question, Anderson notes, should cover both process and system. “The second most common mistake is to try to put a square peg in a round hole,” she writes. “Instead of dictating the process or system based on whatever worked in a previous life or what your ERP system says is ‘best practice,’ I’ve found the key to success is to understand what works for each particular situation (unique combination of people, processes and systems).”
3. Have you eliminated complexity? “I gain tremendous traction in delivering bottom line results solely from eliminating complexity,” Anderson writes. “I find that complexity is enticing – the more complexity, the more people feel valued and indispensable. So, instead of getting lost in complexity, encourage and reward simplicity.”
Anderson suggests getting a team together to brainstorm ways to unscramble the complexity. In what ways can you categorize your inventory in order to prioritize? Can you start with one machine? One commodity? One location? One customer? One supplier?
In the end, taking a close and honest look at your inventory management system can have real, bottom-line results. As Anderson explains, if you improve inventory accuracy by 10%, you can end up with anywhere from 10 to 100+% improvement in on-time delivery and/or efficiency. If you improve inventory turns by 10%, you could end up with more cash and increased efficiency. Put simply—it pays to evaluate your inventory management system. How does yours stack up?