Original Date: 04/24/2006
Revision Date: / /
Information : Inventory Management
Midwest Metal Products instituted a process that improved its inventory management and purchasing practices, resulting in higher inventory turns and fewer problems due to unavailable parts.
Prior to 2004, the inventory management process at Midwest Metal Products (MMP) was ineffective. Hardware shortages, missed production schedules, excessive expediting and freight costs, high levels of inventory, and late deliveries to customers were all indicators that the process was not working.
A review of inventory management practices was conducted to identify how to solve the problems and introduce improvements. The new process for inventory counts was to use a cycle count system to replace the annual physical inventory. MMP chose to use a classification system that ensures high-value items and frequently used items are counted on a regular basis. The new process also includes changes in the reorder points. Minimum, maximum, and safety-stock levels are reviewed and adjusted based on demand and supplier lead-times, including transit time. As changes in supplier lead-times or demand occurs, the reorder points are adjusted accordingly. Purchasing practices have been implemented to ensure availability on high-volume or long lead-time items. Blanket purchase orders are placed, stocking programs are established, and consignment programs are used. MMP is in the process of creating an automated system to calculate future demand directly from the forecasts of its major customers. This information will be provided to MMP’s suppliers.
Improvements to inventory management and purchasing practices have resulted in a much-improved inventory accuracy with fewer stock-outs. Costs have been reduced and lower levels of inventory are required. Hardware inventory turns have increased from 4.2 to 8.8 turns per year, and raw material inventory turns have increased from 11.93 to 20 turns per year. Missed deliveries due to late supplier deliveries were reduced from 18 in 2003 to 6 in 2005.
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