SAN FRANCISCO — Supply costs are a significant expense in a fabricare operation, so it is important to control supply inventory. Conversely, it is crucial to operational efficiency that supplies be on hand when they are needed to avoid downtime caused by delivery delays. To control both considerations, it is critical to achieve balance between cost and need.
The supply chain decisions necessary for smooth operations are many due to the various facilities and processes that occur throughout the company. The facility most common for supply discussions is the plant, but the stores, fleets, employees and the back office also consume supplies regularly. They, too, must be provided with a regular stream of replenishment determined by usage, delivery time, periodic bid price and desired safety cushion.
Managing these various streams of supplies can keep costs down while simultaneously providing for seamless operational functions.
Supply decisions should be made on both strategic and tactical levels to align with your company’s business goals. Major purchasing decisions such as the acquisition guidelines and built-in controls of the system will initially require a higher level of management involvement to achieve competitive advantage. Once those guidelines are in place, the daily decisions, inventorying and ordering process become easier to delegate and administer, keeping relationships and logistics in balance with expense considerations.
A first step in accomplishing this balance is to identify the list of supplies that are critical to the smooth operation of your business. Include all of the daily, predictable intermittent needs as well as the less predictable but critical items necessary. Then, all of the alternative sources of the needed supplies should be identified, reviewed and, when appropriate, included in the periodic bid process.
“Just-in-time” delivery offered for daily supplies reduces the necessity of stockpiling many predictable items of need, such as chemicals, packaging, hangers, bar codes and store register tape. For example, if you can place the order for next- or second-day delivery, there is no need to keep a four-week supply and invest your capital in on-site stocks. If the need is unpredictable but truly critical, and the delivery time is six weeks, then the inventory investment cost must be weighed against the impact and duration of a breakdown and the alternatives available before order receipt.
There are many criteria to identify which supplies are essential to keep on hand and which need a greater safety cushion of inventory. Some are listed here:
Extent of Downtime — How much downtime will be caused by a delay in delivery of the needed item? Will the delay create a bottleneck that slows the entire operation? Will the pieces per operator hour (PPOH) be affected?
Can your team still be productive during the delivery period? For example, are they cross-trained so they can work elsewhere during the period of the replacement and/or delivery delay?
Is there an alternative solution (or backup station) that can produce the work until the new part arrives?
If the item is expensive but absolutely necessary to operations, and the need not predictable, do you know a friendly competitor that could provide interim capacity (such as a cleaning machine that you can use in the off hours) or can an alternative be readily leased (such as a portable boiler on a trailer)?
Can the labor force be sent home without disruption of the plant and/or employees for a short period while the piece is rushed overnight or during the installation of the part?
Predictable Usage — Is the supply item usage predictable? How often does the part need to be changed?
Item Cost — How expensive is the part or supply?
Financial Flexibility — Do you have the financial flexibility to buy in bulk to achieve a cost savings? If so, would a bulk purchase disrupt your local supplier relationship, and to what extent would that affect your costs and delivery on other items you need regularly?
Needed Resources — Do you have the resources (cash and space) to build in a reasonable but larger margin of safety to protect your plant efficiency?
Level of Necessity — Is the supply necessary to achieve and maintain your desired level of quality of cleaning, finishing, packaging as well as tracking/control over consistency?
Customer Experience — Does it contribute to a consistent or improved customer experience at your target level?
Tuesday's conclusion: More keep-on-hand criteria, and compiling an inventory control list