| 1. ManEx Minute - 19 - Inventory by Project |
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"The secret of all victory lies in the organization of the non-obvious."
-Marcus Aurelius
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March, 11 2009
Issue 19
Greetings!
Although we continue to hear about increasing unemployment and a dropping stock market, my contact with companies in this industry seem to indicate that, overall, the industry is reasonably stable.
We may not know what the future holds, but we do know that it is a great time to get organized and become more efficient.
One area of interest to many, is how to more efficiently organize and track inventory exposure by customer and project. Companies can use this information periodically throughout the job to minimize exposure and improve cash flow.
According to the most recent survey, nearly a third of you do not have a good method for tracking this inventory. It takes an average of 3.5 hours to compile this data and occasionally requiring days. For this reason, this issue will focus on compiling detailed on-hand and on-order information for inventory by customer or project.
As always, we look forward to your participation and feedback as you gain new insights and become a more effective provider of Electronic Manufacturing Services.
Sincerely,
David Sharp
ManEx, Inc.
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 Business Case - Inventory Control |
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Inventory by Project and Customer
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North Eastern Company (NE Company)* is required to provide a monthly inventory exposure update to their three largest customers. This is a time consuming process and requires about 6 man hours per customer each month.
Additionally, NE Company is feeling the impact of the slowing economy as a small but growing number of customers stop placing new orders. According to their agreements, whenever a customer stops ordering for a period of six months or more, or when they end the relationship, NE Company will invoice for all remaining inventory purchased and on-hand for the customer. As with the monthly updates, the list of inventory takes about 6 man hours to compile.
NE Company has tried several methods to make this process easier and faster. However, they have been unable, so far, to find the right balance between consolidated inventory with increased buying power, and visibility of inventory by customer or project.
How can NE Company consolidate their inventory, while maintaining easy visibility of inventory on hand for any given project or customer? How can they reduce the time required to compile on-hand inventory information?
*Name has been changed
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Business Case Solutions
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The potential impact of residual inventory on profitability and cash flow increase the importance of understanding inventory on-hand by project or customer. There are numerous methods for purchasing and tracking inventory by customer or project.
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ManEx Case Solution
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ManEx was designed from the ground up for electronic contract manufacturing. As a result, no other system fulfills the needs better. ManEx has many standard and optional modules designed to streamline inventory tracking and control.
Read the full ManEx Case Solution >>
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INVENTORY BY PROJECT AND CUSTOMER
"We choose to purchase through our MRP system but when special projects come up we still attempt to use existing P/N's and/or expedite material manually."
"We look at excess inventory to charge [the] customer accordingly."
- Nick, TX
"[Our process] takes a long long time. [It] depends on the customer and number of BoM's and parts."
- Michael, IL
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Please share your ideas and insights on a topic below. Use the questions to direct your response. You can submit your thoughts to mym@manex.com by clicking the topic title. Where appropriate and space permitting, we will post responses in a future newsletter so all may benefit.
Work Order Numbering
How do you use Work Order Numbering?
Do you let the system set the numbers, or do you manually set them?
Do you add intelligence to your Work Order Numbers?
If so, what type of intelligence do you add?
What benefits have you seen from this approach?
Performance Tracking
How do you track expected and actual time on a job?
What is your standard variance between expected and actual?
What do you do when you find a variance in labor hours?
Do you factor actual labor hours into your future pricing?
What benefits have you seen from this approach?
To suggest a new topic please send an email to mym@manex.com.
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©2008 All Rights Reserved.
ManEx Minute is a bi-weekly email distributed by ManEx, Inc. |
Developing with YOU in mind! |
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| 1.1. Business Case Solutions - 19 - Inventory by Project and Customer |
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| Business Case Solutions
The potential impact of residual inventory on profitability and cash flow increase the importance of understanding inventory on-hand by project or customer. There are numerous methods for purchasing and tracking inventory by customer or project. Some of the common methods are listed below.
Common Methods for Tracking Inventory by Customer or Project-
- Separate Inventory Locations - Creating separate locations in inventory for each customer or project simplifies the process of identifying and reporting on-hand values. However, this can make part crossing difficult and may require significantly more room for component storage. It may also increase the value of on-hand inventory overall as the same part may exist for each customer or project. If the contract with the customer covers the excess inventory and space isn't an issue, this may be the easiest method to manage.
- Unique Part Numbers - Creating unique part numbers for each customer or project can make it easier to report on-hand values and may require less shelf space than completely separate inventory locations. However, it can still make part crossing difficult. This may also result in an increased on-hand value as the same part may be loaded multiple times under separate part numbers.
- Part Number Labels - Labeling incoming parts for separate projects allows for consolidated inventory locations and simplified part crossing. It also will likely reduce on-hand values to minimum levels. However, reporting on-hand values may be difficult if it is a manual process.
- Purchases and Kit by Project - Purchasing for each project and kitting the components upon receipt will ensure parts are used in the kit for which they were purchased, and can facilitate on-hand reporting by that project. However, part crossing may be very difficult and the same component may exist in multiple locations. Additionally, once the project is complete, users must find a place for the residual inventory. Some companies will apply the cost of the full reel to the project thereby eliminating residual inventory, but this will increase the cost of the kit and may erode profitability or make it difficult to initially win the business.
- System Managed Inventory by Customer or Project - If possible, the system should maintain on-hand quantities and values by project or customer. This will allow for a consolidated inventory, increased buying power, and simplified reporting. If implemented correctly, it can reduce residual inventory as well.
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| 1.2. ManEx Solution - 19 - Inventory by Project and Customer |
ManEx Case Solution
ManEx was designed from the ground up for electronic contract manufacturing. As a result, no other system fulfills the needs better. ManEx has many standard and optional modules designed to streamline inventory tracking and control.
- Inventory Control Management - This standard module allows users to control inventory at the warehouse location, manufacturer part number, customer part number, supplier part number, and internal part number levels. It is easy to see which parts are on hand, if they are allocated, and where they are in the facility.
- Project Management* - This module allows users to allocate inventory to a project while placing the order, and from general inventory. This simplifies the tracking process and facilitates simplified reporting allowing users to get real-time on-hand inventory quantities and values for any given project. It also provides inventory control preventing the accidental use of project inventory for non-project jobs.
- In-Plant Stores Management* - This module allows users to track and manage inventory owned by third parties. Users can invoice the customer for slow moving or inactive inventory to remove the value, but still maintain visibility. If the parts can be used on a future order, it manages the process of properly tracking the value so an order can be placed with the customer or supplier for that inventory. This reduces holding costs and time required to manage the inventory.
- Inventory by Warehouse - Users can separate the inventory by warehouse, even if the warehouse is physically in the same building. This increases functionality of the system and provides standard capabilities to increase inventory visibility and control.
- Inventory Allocation - This module allows users to allocate inventory to a job or project*. This allocation increases the level of control to ensure the parts are available when needed and used only for approved jobs.
- Custom Reports - The ability to create custom reports, allows users to setup special reports to streamline the reporting process. This can be in addition to any of the previously mentioned methods and allows for greater control and customization.
NE Company implemented the Project Module and started assigning all purchases to selected projects. They also assigned active on-hand inventory to the same projects.
These changes allow them to create an accurate on-hand exposure for any customer or project in under 30 minutes (including time to review components requiring special attention).
They also created several custom reports that leverage the added capabilities. This enabled them to conduct an evaluation of inventory common to multiple customers and projects and reduce the total exposure. It also enables them to review the total value of inventory purchased for a project and compare that to expected in order to provide additional metrics for evaluating their purchasing and production performance.
NE Company has been fortunate in that they have not lost any business recently, but their monthly updates to their largest customers reduces their liability, and allows the customers to better plan their orders and consumption. This value-add service has turned into a positive selling point and allowed them to differentiate from the competition and recently win new business.
*may require the purchase of an optional module
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