Original Date: 02/19/2007
Revision Date: / /
Best Practice : Point-of-Use (POU) Replenishment System, Supplier-Managed Inventory (SMI), and
In response to a challenge from manufacturing operations to improve material presentation, Supply Chain Management initiated a movement to a material management system aligned with how that hardware is consumed. The change has resulted in the elimination of processing time and space utilization as well as unnecessary working capital investment.
Raytheon’s Network Centric (NCS) Systems Largo, Florida, facility implemented significant improvements in the way material is procured and delivered to the end user within the operation after Supply Chain Management leadership was challenged to reduce the need for kitting and to establish a pull system for buy parts with signals going directly from the point of use (POU) to suppliers. Prior to this change, scheduled material receipts were aligned to operating system need-dates that did not accurately reflect usage. Time was required to convert requisitions to purchase orders, and POU inventory was managed only at the work-center level and was often inaccurate. The replenishment process was cumbersome and wasteful.
Supply Chain Management responded with a modified Material Management System based on POU replenishment, Supplier-Managed Inventory (SMI), and Supplier-Owned Inventory (SOI). The new POU Replenishment System revolves around electronically generated pull signals that feed directly to the supplier and rely on accurate inventory information coded to identify inventory to a specific bin within a work center. The SMI and SOI processes apply to material with predictable demand rates and require the supplier to have material available upon receipt of the pull signal from the factory. In the SMI process, the point of sale for the material occurs when received into the POU. The point of sale for the higher-value material occurs at a negotiated time in the SOI process, desired to be after installation and checkout of the unit in its next-higher assembly (Figure 2-4).
The changes have resulted in an automated pull system at the Largo facility complete with purchase order generation and receipt generation, reduced administrative processing time, and an 84% reduction in lead-time for SMI items. Combined with the SOI process, the changes have led to a reduction in the demand for inventory storage space and have improved cash flow by reducing working capital and increased material turns. The SOI process also benefits the supplier due to a better understanding of demand trends, improved communication, and a partnering relationship. This has led to an improvement in Supplier Rating System performance and the potential for additional business.
Figure 2-4. Standard SOI Process
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