An Unfortunate Downside of Process Improvement

Recently a client wanted to improve the reliability of inventory transfers from a central warehouse to several retail locations. The retail managers had claimed that sales were depressed because they didn’t have the items the customers wanted. Customers were frequently sent away empty-handed due to stock outs.

We developed a Kanban system, which is a process that automatically triggers replenishment when an item’s inventory level reaches a certain point. The system allowed for frequent inventory transfers with the dual benefits of improving availability and reducing inventory on hand. It worked exceptionally well…too well, in fact.

As it turned out, the reasons that sales were lower than projected in the stores had nothing to do with stock being unavailable. Lack of training, in some cases poor hiring practices, and lack of management oversight were the root causes of the problem. Unfortunately this was so clear after the system went in that the managers of a couple of stores loudly proclaimed that the system didn’t work, even when it could easily be shown that it did. They were hiding behind make-believe inventory shortages.

How do you prevent this from happening? First, be sure you have the right measures in place. Then understand the root cause of the problem. Then develop people and make sure you have the right ones on the bus. Develop a culture of accountability with ownership clearly established for the whole system. Great process does not automatically remove resistance to change.

Are your process improvement programs supported by all of your key people? Have you achieved true root cause?

© 2014 – Rick Pay – All Rights Reserved

Vendor Managed Inventory – A Too Frequently Overlooked Tool

I have talked to many purchasing personnel who will not use Vendor Managed Inventory (VMI) as a tool for inventory management in their companies. They have typically had a bad experience with suppliers overfilling bins, allowing stock outs, or they simply don’t trust suppliers to do the right thing related to stocking programs.

VMI is the process of having suppliers come in to the company to review current stock levels and order inventory as needed, and can include the supplier actually replenishing the stocking location with needed materials. It is often referred to as a “bread man” system since it was originally patterned after how bread is stocked in grocery stores.

Many vendor stocking programs focus on “C” items (those with low volume or value), such as fasteners, packing materials, or production supplies. While those materials are great targets for VMI, this overlooks other materials that suppliers can successfully manage. Basically, anything that can easily be visually managed, has short replenishment lead times (typically a couple of days to a week) and has a local supplier presence can be managed through VMI.

The biggest issue that stands in the way is trust. In a successful VMI program, an internal resource works with suppliers to:

1) Clearly define how the program will work and what the performance expectations are,

2) Monitor performance to assure the expectations are met, and

3) Meet with suppliers frequently to adjust inventory levels to meet the company’s future needs.

In other words, communication and trust are cornerstones of success with VMI; in fact, they are the cornerstones of any supplier relationship. How can you work with suppliers you don’t trust? Why would you?

The benefits of VMI are several –

1)    Reduced inventory levels

2)    Reduced stock outs

3)    Reduced internal cost of ordering and managing inventory

A final benefit is having the supplier actually see what is going on in your operation so they can make additional suggestions to improve service and cut costs, which is a true win/win for both organizations.

Don’t overlook this opportunity to significantly improve materials management in your organization. With solid processes and attention, VMI can be a home run for your company.

© 2011 – Rick Pay – All Rights reserved