A Better Strategy for Inventory Management

OEMs are constantly challenged to squeeze more out of the supply chain pipeline to reduce costs and increase profitability.

In many cases, this added profit and reduced cost comes from developing a better system or process.

However on other occasions those financial gains can come from maximizing repetitive but vital organizational tasks. In essence, that can mean taking advantage of some other company’s better process.

For example, the daily requirement of managing inventory. It may not revolutionize the systems and builds you are creating for your packaging customers. But it might help you smooth out the rough edges when it comes to prompt, comprehensive service. And it might help you save time and money.

If you’ve ever been stuck without needed parts, with too many of the wrong parts, or without enough hours in the day to get parts where they need to be, you know what we’re talking about.

And we might be able to help. As a $13 billion manufacturer of some 700,000 parts, distributed and inventoried around the world, we understand the struggle. And we’re constantly looking for ways to maximize our own warehousing and distribution systems, so we can provide the level of service that customers demand.

If you’re concerned about carrying too much inventory that’s not yet in production, running out of critical parts, or getting parts closer to the point of use efficiently, perhaps a dynamic vendor-managed inventory system could help by closing the gaps. And if you’re already using some form of VMI but need ways to up your efforts, the following tactics could maximize your gains.

Bin Systems. Bin systems have become a popular way for OEMs to organize parts at the point of use. To that end, Parker’s Bins program uses bins and cabinets placed at critical locations within OEM plants, to help facilitate smooth production. Sizes and styles of these bins range from scoop boxes to open bins to rolling pneumatic cabinets. The bins are intended to provide increased visibility of Parker products and to centralize all the parts, such as fittings, flow controls, regulators and other connectors needed in each location. The bins can be paired with Parker’s Bin Labeling Program, allowing Parker distributors to offer OEMs the benefits of simple part identification and easy restocking. In addition, some distributors have access to proprietary software and related technology tools to measure inventory levels and tie these findings to the OEM’s back-end procurement or consignment systems, which can save even more time and effort for OEMs.

Material Handling. Many Parker distributors are able to offer onsite inventory restocking services for OEMs at locations that are close to the points of use. In addition to stocking parts, the distributor’s representative may also scan bins and cabinet storage on each visit to document inventory levels. In some cases, distributors may be able to monitor inventories remotely, using digital weighing systems and Bluetooth-enabled technology linked to the distributor’s server or order entry system. Inventory levels over time can be analyzed to optimize stocking quantities on a continuing basis. And inventoried locations can also be classified and maintained separately for different points of use, since the costs of the parts might be tied to varying cost structures and revenue streams.

Dynamic Inventory. Another option for OEMs is working with distributors to adjust inventoried quantities regularly, rather than using static assignments for long periods of time. Using a lean inventory model, distributors can help adjust inventory levels for specific items. The idea is to keep stocking levels in line with use rates on a continual basis over time. This means that stocking levels may have to be updated regularly, through scans of supply bins and racks and a continual focus on optimal quantities.

A general rule of thumb is to keep parts on the shelf or in inventory for no more than two weeks, and to replace production inventory around 20 times per year. However delivery frequency can also affect turnover, since distributors may stock OEM shelves weekly, twice per week, or even more frequently for high volume accounts. The optimal levels should be reassessed regularly based on handheld scans of bins and racks and an understanding of the OEM’s usage and back-end analytics. As another time-saver, distributors may also be able to help OEMs eliminate some procurement paperwork by way of consolidated invoicing.

Financial Benefits. By implementing VMI services such as bin systems, onsite receiving and handling, and dynamic supply systems, OEMs can streamline some of the time and effort required to keep inventory flowing at the right speed. They can also help reduce costs to manage that inventory and reduce unnecessary buying. It all adds up to reduced carrying costs, more cash on hand, greater oversight and increased protection against shortfalls. All told, these changes have the potential to maximize and preserve responsive customer service.