Overview of Existing Business Climate
Identifying the problems within the current structure of operation was relatively straightforward. The company was responsible for consigning inventory for their clients throughout the world. Inventory consisted of aircraft parts as well as specific attachment pieces necessary in the assembly, modification, and repairing of several larger airplane models.
With approximately 4 million working parts involved in one plane assembly, the number of end items being warehoused and volume necessary to maintain customer satisfaction was staggering.
Part numbers were in the tens of thousands and had been an elaborate mystery affecting the company in the following ways:
- Inventory costs were much higher for customers due to tainted information which resulted in far too many of certain part numbers being billed and housed by mistake.
- Their systems were failing for tracking parts vital to fulfilling their customers agreed upon service levels, and shortages resulted in manufacturing delays.
- Minimum quantities on hand were never accurate and the extra costs associated with multiple partial shipments needed to try and minimize manufacturing delays were many times more than acceptable
- On time shipments were suffering due to delays in trying to fulfill orders for parts which were visible on screen but literally did not exist.
- Labor costs were extremely high due to the overabundance of "physical inventories” necessary to try and minimize the losses from delays throughout their systems which had enraged their customer.
Impact of Failing Current Operational Scenario
With the losses incurred by the customers for maintaining excess inventory to compensate for poor tracking, the clients were being over-invoiced and under serviced. Internally, enormous spikes in extra shipping costs due to "makeup" loads of parts being rushed had fractured the current logistics budget.
Excessive costs incurred by attempting to physically calculate on-hand inventories were far above labor budgeting and other "non-inventory” related operations personnel had to be cut back on hours or even laid off to try and reign in the over expenditures.
In addition to the losses in profit, the customer dissatisfaction of poor on-time delivery of parts vital to their operations was causing customers to cancel contracts and internal operating efficiency was down due to staffing reductions. Without radical and immediate intervention the loss of clients would rapidly increase and resulting price adjustments and labor reductions necessary to compensate would create a downward spiral of the small profit being realized in the current business environment.
Initial Consult with YBO
Due to the severity of the financial burdens being placed upon the company, the initial consult with YBO was more of an informal cry for help. Since they were actually referred by an existing client, YBO was brought in as more of an "internal member” for the assessment of the current business environment.
Top management of the company believed in the theory that often a new set of eyes is the best way to achieve a proper view of existing procedural failings and weaknesses within systems. With the philosophy of YBO centering more around small and mid-sized clients, catering to their individual needs through personalization and "on-the-fly” task-specific solutions, the concept of "partnering" to identify and custom-build a VMI system made the most sense to both parties.
Prioritization of Needs
Without question, the primary concern was to prevent any further loss of customers due to over-invoicing for incorrect parts and missing ship dates by not being able to fulfill lead time constraints at acceptable customer satisfaction. With the current level of maximum and minimum quantities which were contracted. Thus, the actual amounts which existed or did not exist, in many cases, it was only a matter of time before the largest customers found new vendors as a result of their frustration.
The number one root problem was identified which caused a majority of the incidents. Too many employees having access to inventory parts for multiple companies was the source of failure. It is a common problem many companies have due to a lack of internal business process restrictions. Either new or inexperienced employees were pulling the wrong parts from inventory or incompetent employees were simply pulling the first available part needed from the quickest source. Regardless if the part was held in separate locations reserved for a large customer or plainly visible as "available" in any location, no restrictions on access were in place.
Employees were harvesting parts from places they had no reason to access by simply looking on the screen and finding the first spot to grab inventory.
YBO through customization created employee viewing restrictions with respect to warehouse locations. Of course, the physical access to most valued VMI needed to be physically separated and maintained.
Improving physical security measures at the same time, plugged the leak in this situation, which was due to information being accessed by too many people who took advantage of "holes" in the security inventory concept. Inventory viewing access was assigned accordingly;
Customers Executive access - Restricted access only provided to two most efficient and trusted employees for consigned inventory. With measures in place to add an emergency staff person due to absence with security clearance via similar credentials of one of the two existing executives. With more than 70% of profits coming from these select few clients, the restructuring of roles and responsibilities based on a reliable VMI system was necessary. The "leakage" stopped instantly.
Secondary Clearance was added as a phase two security measure, and universal access was the third and final level of viewer restriction. Succession planning lists were put in place, and cross-training was implemented by those higher on the list, and risk was contained and minimized with respect to future inventory breaches. If their previous system had the customization capability, millions of dollars in losses could have been prevented.
Additional changes were made to the physical processes at the same time utilizing the same concepts of prioritization and logic. Warehousemen were assigned strictly to protect these inventories and only they were allowed to pull from inventories. It was discussed and decided that even any potential "downtime" which might occur would be of minimal financial impact compared to customer losses due to the raiding of inventories which were now in the past. YBO is able to help through common sense advisement when worlds of VMI systems cross with procedures, and it was a vital part of this decision. In addition to assigning executive warehouse staff and inventory control specialists, executive processors were assigned internally through security clearances and restrictions on that side of the VMI platform as well.
Philosophy Implemented - Highest and Best
Only those with the most experience and highest performance levels were allowed access at any level throughout the entire system from invoicing, adjusting replenishing levels, with respect to reordering points and minimum order quantities to ensure maximum profitability during all stages of order fulfillment, reporting, and billing.
Further Enhancements of a Customized VMI System
Problems of inventory shortages were solved by creating complete visibility to only those who needed to see specific information. On the manufacturing side, MOQ’s were structured around more sensible levels designed to make larger runs of parts. It was discovered during the implementation process, which is often the case, that the actual "customer" had little idea of what they wanted, needed or consumed. Their internal systems could not identify the multiple instances where large orders were mistakenly made and shipped back to inventory and corrected orders were placed and fulfilled. The customer view of their demand was far from reality and was clearly identified through the reporting capabilities of the customized VMI platform set up by YBO.
Additional findings as a result of improved processes were
Re-order points were set at the correct levels and set to flag automatically when approaching those levels, serving as a warning indicator. Items with unacceptable inventory turns were set to be lowered at more cost-effective levels. This was exceptionally valuable due to compensating for the difference in "perceived" vs. "actual" usage of the customer.
Tracking of repeat items and most popular was merged and categorized with those most vital to manufacturing processes of the customer to minimize any future impact on the production process which once was strained by antiquated technology and procedural practices.
Auto-invoicing and shipping data were set with parameters acceptable to meet the targeted customer satisfaction levels, but with cost-effective measures being established. Shipments were assigned by cost-effective logistics management with rare exceptions made for "emergency" parts which costs were passed on to the customer in many instances. Minimal invoices were assigned time "windows" and were not created for amounts which took more costs in labor in order to administer in order to allow future orders to be merged with them. Purging dates were set for specific accounting dates most lucrative for cleaning up tiny invoices.
Systems were streamlined, automated and structured reporting was established in order to monitor progress constantly and isolate any potential challenges as well as prepare for growth.
YBO Overview of Project Completion
Allowed to step in and actual "partner" with the company was the key to success in this situation. YBO was able to view the root causes quickly by utilizing an "outside" stepping in concept. By requesting a set of necessary reports, establishing flowcharts of processes currently in place and listening to the list of problems a "macro" view of the operation was possible. Without the "clouds" of everyday exposure and "perceived" limits with respect to change it was a case of multi-faceted VMI installation and customization in conjunction with restructuring and refining business needs at the same time. YBO’s philosophy that "in order to be the best, you must become different" certainly applied in all aspects of this case study.