Reduce WIP and Finished Goods Inventory

Industry : Municipal and Leisure Products

Company Type : Playground Equipment

Project Title : Inventory Reduction

Tools Used : Lean tools; Statistical tools and improved system tools

Total Savings : Approximately $10 million reduction in WIP and Finished Goods inventory, a 20% decrease.

• Warehouse space increase so that all products could be now stored inside
• Improved customer satisfaction.

Problem Statement

Inventory levels are high, $70 million for WIP and FGI, while service levels remain low, 70% on-time shipments.

Goal Statement

Reduce inventory by $15 million dollars, saving $1.8 million in carrying costs and improve on-time shipments to 95%

Background

The first tasks that had to be accomplished were to understand the ordering and plant scheduling process along with details for their MRP/ERP system. A detailed process map was developed after thorough interviews with the plant schedulers, supervisors and purchasing. Also, several hours were spent understanding how the scheduling system was being utilized and what its capability was.

We discovered that ABC inventory categorization was not being utilized and schedulers were scheduling production using similar batch sizes for all parts. The shop wanted to have 3 weeks worth of orders release to the floor to ensure that everyone was busy. Also, the MRP system ABC code field was not being utilized and parts were being made and stored in painted form (company uses 6 paint colors) which added to inventory levels

Purchased components and raw material were procured in large batches to get quantity discounts and there was no evidence of any yearly purchasing agreements.

Project

Train in Inventory Management Basics

1. Change had to take place in how raw material was being purchased and manufacturing schedules were developed.
2. Basic inventory management and shop scheduling training was conducted to ensure the basics were understood.

Revise MRP system

1. The ABC code field in MRP was re-established.
2. An excel spreadsheet was created that reviewed past years consumption and ABC codes were developed separately for Purchased components, Manufacturing parts, and Finished goods.
3. New codes were uploaded into the MRP system and a procedure was established to review all new parts being added.

Change scheduling practices

1. The first order was to schedule based upon ABC principles, A-items were made every 2 weeks, B-items every month and C-items every 3 months. This action reduced changeovers and less confusion on the floor.
2. Next, we only released orders to the floor that they could work on that week instead of 3 weeks worth of orders. This ensured that necessary orders would be worked and shop could not "cherry pick" what they desired to work on.
3. Orders were processed up to the paint process (last step before finished goods) and they were stored unpainted. This allowed manufacturing to paint on demand and allow for improved order fulfillment.

Revise Purchasing policies

1. Most key suppliers were located within 50 miles so a Kanban approach was undertaken.
2. Yearly purchasing agreements were developed to ensure that quantity discounts would be obtained.
3. Purchased components where stratified by ABC logic and A items were set for weekly deliveries, B items bi-weekly and C items every 3 months.

Summary of Results

After 6 months of the remedies being in place, total inventory was reduced by over $10 million and the goal of $15 million would be achieved.

The overall goal of $1.8 million reduction in carrying costs was attained and order fulfillment was improved to 88%. It was discovered that order accuracy issues were limiting better fulfillment and a lean project was started to fix those issues.

To see the resume of the expert associated with this case study, see the link below.