The Power of Supply Chain Strategy

Situation:

The CFO of Alaska Communications saw that warehouse costs were high and inventory levels consumed too much working capital. He wanted to redesign the company’s supply chain strategy in order to cut warehouse costs, lower inventory levels, complement changes in overall company strategy and accommodate senior executives’ impending retirements.

Alaska Communications provides telecommunications services for the state of Alaska, including major infrastructure construction, business line services, retail wireless and home networking. The company has multiple warehouses across the state, a long history of good service and a loyal workforce.

Solution:

With our help, Alaska Communications developed a supply chain strategy based on partnerships. We developed vendor partner programs with key suppliers using Vendor Managed Inventory; auto-replenishment systems including Kanban; Lean thinking; and partnerships with the unions to personalize the changes. We created a 12-point supply chain strategy approach that helps ensure continued partnership success, appropriate IT support, and close communications between departments, particularly accounting, customer service and field engineering.

Results:

Dissolving a Backlog Through Process Discipline

How teams with a focused vision can improve Operations and Supply Chain functions and increase revenue

Situation:

The CEO of a $20 million assembler of medical supplies was frustrated. The company had grown rapidly and additional market opportunities remained. The company’s growth had revealed weaknesses in Operations and Supply chain, resulting in increased backlog, low shipped on time, and low morale.

Solution:

An initial Operations and Supply Chain evaluation revealed issues related to supplier lead-times, inventory accuracy, production scheduling and a lack of process discipline as well as a lack of organization and accountability in operations. We developed five task forces: one to direct the overall improvement project and four to address each of the key issues:

• Supply chain
• Inventory
• Production scheduling
• Metrics

After developing vision statements and a list of improvement opportunities, the teams proceeded to implementation.

Results:

Over the five-month period of the project, the backlog went from over $1 million to less than $50,000. Shipped on time went from about 25% to 80% and continues to improve. And best of all, the Sales Department now feels the pressure to continue to boost revenue for the company.

Case Study Highlights:

From Cash Drain to Profitability

Transforming a Low-Performing Division

Situation:

A company that traded in commodities and lumber had a production facility that was not profitable, had excessive inventory levels and poor customer service. This particular facility presented a serious cash drain to the parent company.

Solution:

• Instituted sales and operations planning and improved the communication between sales and production
• Implemented Lean concepts including single-piece flow to boost productivity
• Improved inventory management by using Kanban systems in the material warehouse
• Streamlined the shop floor flow by improving the layout

Results:

Getting Things Ship-Shape

Managing Inventory for Maximum Efficiency

Situation:

A medium size ship repair yard and barge production facility could not efficiently provide parts, fittings and electrical supplies to crews working to retrofit ships. They had substantial obsolete inventory, low inventory turns, excessive part shortages, high materials costs, and they struggled with labor inefficiencies.

Solution:

To make sure that the work crews got the right parts at the right time, we established supplier partnerships and vendor managed inventory. We created more space for supplies by eliminating obsolete inventory and improving the warehouse layout.

Results:

How Improved Purchasing and Inventory Management Can Cut Costs

Situation:

Established in 1973, Oregon Wire Products is a wholesaler, retailer and manufacturer of steel wire products and concrete accessories serving residential and commercial contractors, as well as nurseries, agricultural, floral and holiday wreath businesses.

Oregon Wire Products maintains a strong reputation in the marketplace, but was experiencing slow inventory turns and excessive materials costs.

Our Process:

The overall goal was to reduce costs and improve use of working capital. The R. Pay Company identified key strengths and weaknesses in purchasing and inventory management and aided in hiring an Inventory/Materials Manager to put the recommendations into practice.

Results:

Increasing Cash Through Improved Operations

How Improving Operations Helped One Company Boost Cash Reserves and Avoid Lay-offs

Situation:

A middle market manufacturer of medical and dental lab equipment was in the midst of a cash shortage and saw the recession coming, but wanted to avoid lay-offs.

Solution:

After examining the company’s operations from every angle, we implemented changes to inventory management processes as well as production. The company set up auto replenishment systems including Kanban and VMI, while also establishing point of use inventory on production lines and discontinuing kitting.

By selling, returning, or repurposing their slow- moving and obsolete inventory, the company freed up cash and warehouse space.

Results:

Leveraging a Win-Win Relationship

Supplier Partner Programs enabled a company to seize the day, gain major market share, and put their competitor out of business

Situation:

A manufacturer of lock boxes for the real estate industry faced a unique opportunity: their chief competitor’s product had failed in the field, leaving its customers unable to show homes. Could the company triple its output and make enough product to grab its competitor’s market share?

One supplier even worked on Thanksgiving to make the supply surge happen.

Our Process:

In a typical company, increasing output so significantly, even for the 45-day period required in this case, would strain suppliers who are unprepared to ship the extra volume, not to mention irritate employees who may not relish the thought of putting in extra hours, particularly with holiday vacations approaching. This company, however, was well prepared to handle the challenge. They had excellent relationships with their suppliers built on the principles of Supplier Partnership, and a profit-sharing program in place with employees. With these win-win arrangements already established, they were primed to act quickly and seize this one-of-a-kind business opportunity.

Excited by the potential profit, the staff rallied. Production worked overtime, the salespeople came down to the floor to build product. Suppliers stood to profit as well, and shipped extra parts to fuel the production rush. One supplier even worked on Thanksgiving to make the supply surge happen.

Results:

• The company shipped the necessary volume to fill the demand, and gained new customers who remained loyal even after their old supplier regrouped.
• Relationships with employees and suppliers grew stronger from the team effort, and everyone involved made money on the deal.
• The competitor filed for bankruptcy, having lost their customer base to a company that was ready to mobilize its resources and leverage its win-win relationships.

Plugging the Sales Leak

Preventing Stock Shortages and Boosting Gross Profit Margin

Situation:

A middle market distributor of construction supplies and materials used centralized purchasing to support their network of branches. The branches regularly ran out of stock, causing losses of 10 to 20% of total sales. In addition to solving the stock shortage problem, company management wanted to improve customer service, revenue, inventory turns, profitability, and cash flow.

Solutions:

We launched a comprehensive change management effort including better sales forecasting, use of a distribution center, and improved materials management throughout the interstate network of branches. Specific
product ramp-up and ramp-down methodologies for new products helped establish proper inventory levels.

A new team-oriented structure established clearly defined roles, responsibilities and accountabilities throughout the purchasing and operations areas and allowed for partnerships between the branches and central offices.

Results:

Setting the Foundation for Supplier Partnerships

How one company transitioned from traditional purchasing practices to a Supplier Partner Program and became highly profitable along the way

Background:

This $13 million manufacturing company used a traditional purchasing system based on negotiated purchase orders. They had more suppliers than they could keep track of, changed suppliers frequently to chase the best deal, and played suppliers against each other to get a better price.

Labor cost went from 13% of sales before the program to just 3% afterward.

Our Process:

We implemented a supplier rationalization approach and narrowed the field to two key suppliers per component, setting the stage for what we call “The Air Force Fly Off.” With two suppliers in place for a given component we performance-tested both suppliers’ products, initially splitting orders 60/40 between the two, but over time whittling it down to only one supplier per part. In addition to measuring quality, we assessed delivery and cost in our gradual transition to single-sourcing every part.

Two years later each part came from a single supplier, with a similar part coming from another. We call this “dual-sourcing the technology,” meaning that if one supplier were to fail, we could quickly switch over production of that part to another supplier. With ten major suppliers in place, we implemented a Supplier Partner Program in which the company sent forecasts to suppliers, used Memos of Understanding to define the business relationship and expectations, implemented Kanban systems for auto-replenishment, and relied on objective measures to regularly assess supplier performance.

Results:

There’s ONE Thing…

How a simple change in production solved a long-term inventory problem

Situation:

First Aid Only, a $30 million producer of first aid kits, found themselves with chronically inaccurate inventory. The production staff blamed the warehouse, but we found that the warehouse procedures were in order. What was causing the inventory problem?

Our Process:

We looked at the entire operation and discovered the production team was overproducing their orders. They counted the first aid kits as they were completed, which left unfinished kits on the assembly line. In an effort to avoid the waste of motion that would have resulted from restocking the unused parts, production went ahead and finished the superfluous kits and put them in inventory. Unfortunately this didn’t leave enough parts to complete subsequent orders, and created more kits than were needed. No wonder inventory was off: 15% of work orders were being made in the wrong quantity. The shop floor supervisor, in an attempt to avoid one waste, had inadvertently created another: the waste of overproduction.

Results:

Without Vision, Things Stay the Same

How an effective project vision, in addition to an overall company vision, creates fertile ground for large-scale change

Situation:

A client expressed a need to uncover enough cash through reducing inventory to cover their bank lines. They called me in to do a Purchasing and Inventory evaluation. Interestingly, the same company had asked for a similar study three years earlier.

No one bought into the change effort because the company couldn’t answer the question, “Why?”

Our Process:

As I prepared to execute the second study I wondered if it would show any changes since the initial study. When I presented the new findings, I included a copy of the first study, and to my surprise they were almost identical. The strengths, weaknesses, recommendations – everything in both studies was nearly the same. Why was this?
The company had never established a vision, and without one, they were unable to communicate the reasoning behind the necessary changes. No one bought into the change effort because the company couldn’t answer the question, “Why?”

Results:

Currently, this company has developed a vision of who they want to be and what they want to accomplish with their current project. The project is moving forward with great speed, and ultimately they were able to cut inventory and uncover enough cash to keep the bank happy.

World-Class Material Flow

How Improved Inventory Management Can Reduce Stock-outs and Shortages

Situation:

A middle market contract manufacturer of light and medium gauge steel fabricated parts needed to support their lean implementation efforts with world-class material flow. Their inventory turns were unknown, part shortages were frequent, and the purchasing process was encumbered by an excessive number of purchase orders.

No one bought into the change effort because the company couldn’t answer the question, “Why?”

Solutions:

To simplify the materials delivery function, we set up vendor managed inventory programs and auto-replenishment systems that would be executed by personnel on the shop floor. These changes, combined with supplier partner programs, yielded daily materials deliveries directly to the production line, eliminating the tangle of purchase orders. We also implemented a cycle counting system to improve inventory accuracy.

Results:

Accelerating Inventory Turns/Accelerating Profit

Situation:

Alaska Communications had a problem getting product to customers through their retail stores. Although inventory levels were high, the stores couldn’t seem to get the right product to the right place at the right time, and were having trouble filling orders for their customers in a timely manner. Inventory throughout the retail store network was over $6 million, materials costs were higher than desired, and inventory management in the central distribution warehouse was suffering. Multiple stores located throughout Alaska made the situation even more complex.

Solutions:

We worked together to implement a Kanban auto-replenishment system between the warehouse and the stores. The Kanban system was comprised of a two-bin arrangement at the stores that was replenished from the main warehouse. After calculating the Kanban size to be sure the stores had what they needed when they needed it, we moved the excess inventory back to the warehouse. This allowed the purchasing department to have a clearer view of product demand and velocity, allowing buyers to make better decisions. Another great example of accelerated profit and growth through improved inventory management.

Results: