Remote Warehouse Replenishment

Multifacility operations servicing multiple geographies are faced with the constant question of optimal warehouse supply levels, and re-order mechanisms.  We are all familiar with the point-of-sale enabled inventory tracking we see in the supermarket.  Often this is not the case with far-flung warehouses where inventory updates may not be compatible (systems unable to speak to each other without a manual or clunky bridge) or even real-time.  How to tackle this?  If the replenishment list can be generated automatically, then so much the better.  Manual intervention should be minimized, or left to correct default values.

Ideally, according to LEAN and other guidelines, as one unit is relieved from stock, another is ordered to replenish to optimum levels.  When a multiplicity of small items is involved, the replenishment process becomes very labor intensive, as each item is picked, catalogued, packed, and re-entered into stock at the destination, even using aids such as item bar-coding.   Inventory levels can be controlled on a max/min system, where actual census can vary within a predetermined range before the re-order signal is given.  This enables bulk picks, a much faster and efficient handling protocol.  The bulk quantity can also be specified so as to take advantage of packing, shipping, and lot size parameters (ever order a 5-pack of beer?!).  Consolidated regular shipments at predetermined intervals (eg. twice a week) may be preferable to daily shipments in some cases.

A simple reflexive system may not allow for irregular demand (end of quarter sales uptick, large individual orders and the like).    Regulatory concerns may also come into play, as one-direction-only restocking creates scrap risk if inventory is expired or stranded in unusable locations.

Storage requirements are a key variable.  Items requiring special handling and storage (low temperature, biohazard, dangerous goods) may be limited in the total space available at the receiving end, and stock should not exceed capacity, especially with multiple items on a max/min re-order.

If the re-order reaction and cycle time is short enough, then the destination warehouse can be minimally stocked, as re-supply is fast and easy – subject to how much stock turns over.  Again, consider the calculus of efficiency of bulk handling vs multiple individual picks and the risk of stranding inventory.  International shipments typically require longer times of weeks or more to ship cheaply and efficiently.  Expedited shipping to meet unexpected customer needs can eat up profit in a hurry, especially if margins are thin.  The shipping schedule may also be at the whim of customs and cold storage capacity options.

With proper analysis of order history and material lot size, an optimal solution for minimizing inventory, shipping cost and working capital while maximizing availability to the customer can easily be reached.  Your particular solution will depend on the balance of these factors and your own business philosophy.

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LEAN Production on Spec?

How often do you get into a situation where you know customer orders are likely to come, but the formal planning system and production schedule has nothing entered?  What do you do?

According to LEAN and other pull-oriented systems, production should only be initiated when firm orders are in hand.  The decision to commit manufacturing time and resources is made automatically once the customer has committed, and only in the exact quantity ordered.  Is this the best way to satisfy customer demand, and maximize revenue and profit?

Using made-to-order production in this fashion is wholly reactive and subject to any number of cross winds which may negate the gains from producing only exact needs, with no “waste”.

Anticipatory production may alleviate many headaches, but involves taking measured risks to maximize positive outcomes and minimize financial exposure.  How a given company reacts will depend on several factors:

What has been the reliability of the forecast in the past?  Is this a product which has been selling steadily or unevenly, and is the forecast a clerical oversight relative to historical demand patterns?  Can Sales contact key customers to (re)affirm sales expectations?

What is the lead-time for both supply chain and processing relative to customer expectations?  Is staged delivery an option (delivery in portions)?

How much will have to be invested in the materials and processing?  How much of this is irreversible (ie not recoverable by recycling or conversion to other value streams) compared to the potential marginal profit from expected sales?  Is partial conversion to an intermediate branch point which is shared with other products possible?  Is the shelf-life going to limit the window for sales?

How does the production schedule look right now?  Are the machines and manpower at capacity or booked for other known orders in the future and so potentially not available should orders come?  Do surge manufacturing or external alternatives exist, and at what cost?

Is it possible to initiate a larger production run combining forecasted needs with the unknown demands? What would any cost savings from this economy of scale look like?

What are customer expectations?  How disruptive would a supply interruption be to the customer or your long term relationship with them?  Does the customer have other palatable alternatives?

At the end of the day, each of the factors listed above impacts either the expected costs or revenue/profit which may or not be realized.  The specific calculation and decision will depend how you fill in the various product and plant-specific variables, as well as your company’s perception and receptivity to risk.  Where do you want to take your risks?

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Start-ups – No Time For Systems?

We are all used to joining larger companies, where many administrative systems are already in place.   Except for perhaps a few tweaks, all systems are turn-key with a full manual and just need to be plugged into the appropriate project or situation.   Off you go with a fully loaded process for developing a product, introducing a new process, changing layouts and equipment, hiring staff… (fill in the blank for your favorite procedure).

What is the role of these systems?  Typically these have arisen as solutions to problems – the best way to implement a given change, or to avoid catastrophe next time.

What about start-ups?

Start-ups are in a race to succeed before they fail.  As the name implies, they are starting up, and unlikely to have any systems in place, unless these have been copied from a readily available open source.  The strength of a start-up derives from the freedom from bureaucratic sclerosis and ability to free-form solutions.  The weakness of a start-up is that resources are usually extremely limited – what amounts to a single shot at success!

With limited resources and scope of activity, a start-up does not need an extensive library of corporate systems.  It does however need to give itself the best possible chance for success.  What are the critical processes for a start-up?  With very limited staff and founder financing, much administration is ad hoc, and very small in scope and potential impact.  However the company raison d’être – the launch of a successful new product, process or service – remains the over-riding passion for those involved.  This is the driving mission and needs to have the best chance of success, or else the company’s prospects for survival get bleaker.

Whereas a fully documented product development plan is likely not in the company library, there is an overarching need to perform the planning and review functions which form the basis of any successful product development and launch plan.  Remember – one shot at success!

Many development plan characteristics are intuitive:  product function, market and customer target, specifications, cost, price, distribution, technical hurdles, IP landscape, manpower, machines, money and equipment needed to meet a given timetable.  Many of these topics can be itemized on the back of an envelope by the founders.

However well- intentioned, founders typically have a narrow, albeit focused, skill set and lack the expertise to critically review a project proposal beyond their specific expertise.  Founders may be technical whizzes, but then lack real-world marketing, sales or supply chain experience (or vice versa!).

In addition, the monitoring of progress towards product launch is crucial.  This is best done through a stage-gate or similar system as part of an integrated project plan.

Although lacking the resources to bring all functions on the payroll as regular staff, it is essential that experienced and competent eyes review the progress at the various decision points.  Are all critical items addressed?  If checklists are complete, is the execution competent or wishful?  Are timelines realistic?

Mentors, consultants, experienced colleagues can all add perspective to the status and chances for success at minimal expense.  The investment in this advice can help avoid rushing off in a mistaken direction, unfocussed targets, sloppy execution and most importantly, missing a crucial consideration. The single chance for successful commercialization and corporate depends on competent execution of all aspects of the project plan, written or unwritten.  Give it your best shot – it is likely to be your only one!

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How Productive Is Your Day?

It is an axiom that the working year consists of 2080 hours (or 2000 hours for easy calculation).   However, this cannot be true!

Firstly, for many days we are not even at work.  These days include holidays (Christmas, July 4th, Thanksgiving, etc., usually 10 paid days off in all), vacations (the 2-4 weeks we all need to recharge!), sick days, jury duty, etc.  These account for easily 12-15% of the year.

When we are at work, a portion of our time is spent in corporate activity which is necessary, but cannot be targeted at a particular project.  These consist of company and department meetings, lab cleanups, general planning meetings (covering multiple lines), safety updates, annual reviews, general supplies purchasing – in short, all necessary to the efficient running of the enterprise, but very difficult to assign to individual projects or products except through overhead.  Yes, these all add up to about 15% for professional staff!  Hourly staff often do not participate in all of the above, so their time attrition may be slightly less.

The time remaining (1440+ hours) is spread across identified specific products or projects.  Timesheets will bear this out.  Hence, a Full Time Equivalent professional employee spends only 1440 hours on targeted research, development and production activities, and 1440 hours is what you can expect to apply to a man-year!  A 2000 hour project actually reflects 1 ½ FTEs, not just one – no wonder some of these projects are late, under budgeted and the employee under stress!

If practical experience (timesheets or other real-time detailed records) show that considerably less than the 70% is being applied, then you have to ask why.  Is it because other (lesser) tasks take up professional time?  Are too many people attending non-critical meetings, which go on far too long or frequently?  Is additional hourly support staff warranted?

The day is shorter than we think.  Let’s make sure we maximize the utility of the hours we have available!

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Answer the Question!

Many unsuccessful project and product outcomes can be traced back to a simple fundamental:  What is the basic question being asked, or need being answered?

Usually the answer being furnished is technically correct, but does not address the questioner’s underlying need.  It can be too much or too little of the right answer:

What is your time to run the 100 yard dash?  For most of us an answer like “10 seconds” is specific enough.  For an Olympic runner, such an answer is grossly inadequate and may reflect the difference between medaling and not even making the final.

In other instances, we may be over precise:  Imagine if your car’s speedometer would read out in 100ths of miles/hour.  This would not only be very expensive to install and maintain, but might obscure the answer to the real question:  are we exceeding the speed limit?

A quest for exactitude may lead us down a completely wrong technical path – the right answer at ruinous cost.  How to tell if the light is turning green?   This does not require a fancy spectrophotometer!  You can even be color-blind – you can see that the red and yellow lamps are not on!  Either way, a simple “safe to go!” result is possible with 100% accuracy.

Even a correct answer may be useless.  We have to look back at the question to see if it truly reflects what we need to know.  The answer to a balloonist’s “Where am I?” question might be met by the groundling’s answer, “150 feet up off the ground.”   The answer is correct, but the question is inadequate.

Product or raw material specifications are prime examples of inadequate questions and answers.  In too many cases, the form detailing specifications is filled out with legitimate analytical data, but does nothing to delineate the minimums needed to differentiate between success and failure.  Many solids have perhaps four specs of which the first three are white, crystalline, powder.  This barely distinguishes the material from table salt or anything else which happens to be in the lab!  It does not identify the critical success factors for this material.  It does not answer the question of what specifications are intended for:  what properties will ensure success by excluding all nonperforming materials?

Asking the right question is key to developing products which perform in the market, are cost effective to produce, and satisfy customer needs.

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Institutionalizing Continuous Improvement

Continuous improvement is a principle that everyone agrees with.  How to make sure it actually happens at the desk level for each individual contributor?

People pay attention to what gets measured, and what affects their paychecks.  Annual reviews get outsize attention since it includes goals, and people know they are measured according to the goals and yardsticks for their next raise.  How to include continuous improvement through goals and objectives?

Everyone is capable of analyzing their own work domain and contributing at some level.  Encourage thoughtful analysis by requiring the generation of some (specific) number of improvement ideas.

Be open to ideas on any aspect of the business, not just the individual’s local sector.  These all count, no matter who comes up with them.

Ideas need to be published in some public form, so they see the light of day and exist as more than an idea bulb in the brain.  This serves as a quality check (embarrassment factor?) and forum for evaluation/dissemination to allow other people to improve/build on the outline of an idea.

Beyond ideas – we need to encourage the reduction to practice of these improvement ideas!   Everyone needs to have a requirement (separate!) to implement (a specific number of) ideas.

Implementation should be evidenced by documented changes in procedure, equipment, or practice.  How else to “prove” it happened?

The ideas which get implemented need not have been generated by the implementer (or even come from his/her department)!

The number of ideas/implementations can vary with the breadth and depth of an individual’s span of responsibilities, and so is easily tailored to particular circumstances.

Apart from the idea specifics generated, people will tend to look for ideas through-out the year.  The periodic progress-to-goals reminders from managers encourages continuous new looks at fulfilling the idea and (more importantly) implementation goals by year end.

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Small Products, Small Sales, Big Impact!

Most companies have varied product lines which fall into the classic Pareto pattern:  80% of sales come from 20% of the product range.  To state the obvious deduction from this:  20% of sales come from the remaining 80% of the product offerings.  As we get to the tail end of the distribution, we find many low value products which sell only occasionally, at infrequent or irregular intervals or amounts, even only one or two each year, and some none at all.  Screws in a hardware store, and antibodies in biotech suppliers are typical product lines which fall into this category. These products may be considered a frame for the top sellers, ie complementary.  However, they pose a significant challenge to inventory valuation, customer service and planning/supply chain functions.  How best to tackle these?

To invest in stocking each and every item represents a considerable outlay of time and capital.  Unless margins are outstanding and shelf life is not a limiting factor, for most products this is clearly not worth it.  A common policy is to keep no stock on hand but “order on order”, ie only make or source material when a customer order is already in hand.  The problem here is that the customer expectation may be of near- instant availability, and urgency is the order of then day all through the supply-chain process, other requirements and capacity notwithstanding.  The sourcing process for a single item is inherently expensive, and the lead times are variable for many items, especially if months or years have elapsed since the last sourcing exercise.  This sourcing process is a major cost element which is often neglected when calculating the return on low selling products. How many customers are happy with a 2-6 week lead time estimate, or worse, a two week lead time which is missed by weeks due to unforeseen issues?  This negative framing effect may extend to other items which are readily available, higher margin, and represent an opportunity missed to keep customers from going elsewhere.

Where items sell slowly but steadily, an alternative approach is possible.  This is the “replace on order” policy, where stock is replenished as the sales happen.  This policy necessitates increasing stock, but in a predictable way, with minimal investment and little added scrap risk.  Expected Inventory Turns and customer service impact can be statistically defined with this model.  The uncalculated and often hidden benefit is the wider window for sourcing the replenishment stock.  Similar items can be combined on Purchase orders and worked into the regular flow of business so that economies of scale can be realized and costs minimized.  Customers get their product within days, and better yet, come back for more of this and other items.

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