Stocked and Loaded
How exporters are using inventory management software to reduce lead times and keep cash on hand.
As a leading manufacturer of merchandise identification and tracking devices, one would think that Zebra Technologies had no inventory control problems. It wasn’t that the Lincolnshire, Illinois, company had too little or too much inventory at its Vernon Hills distribution center; it was a matter of finding and putting together orders in a small staging area for shipments to Canada, Latin America, Singapore and the Netherlands. It also had to keep track of container loads of parts from China.
Ironically, the company that produced devices to help others track merchandise needed some help locating its own parts.
Shipping nearly $3 million of bar code tags, readers, printers, accessories and supplies daily, Zebra needed to solve two problems: labor and space. To fill an order, workers would have to look for parts numbers in various sections of the warehouse to bring to a small area. There the parts, accessories and supplies would be packaged for shipment.
“We had an issue,” explains Gary Meekma, senior manager of warehouse operations. “We were paper-based and it was not effective.”
Additionally, the old system was time consuming. “One person is not picking all the items in an order. A guy would be picking items in one corner of the warehouse, another picking items in another corner,” Meekma explains. “We had to have a consolidated system.”
The objective, says Meekma, was to reduce the time it took to find parts and to reduce the space needed to assemble the order for shipping. Before implementing a new system, one developed by another Zebra division, workers took longer to find the parts they needed for the order. For some orders, it took as long eight minutes to find a part. With the new system, it now takes no more than three minutes. It utilizes bar code tags, real-time scanners and is driven by software that company officials say is more accurate than a GPS system.
The distribution unit made the switch in February, when the company adopted Oracle, a comprehensive computer system. But Meekma needed more than Oracle. The company had just developed System Builder, a supply-chain software package. However, the Vernon Hills facility didn’t need all of the features in that package. Meekma only needed System Builder’s real-time locating system (RTLS) feature. An initial launch was made at the company’s Netherlands distribution center, but it needed some tweaking before it was a good fit for the larger Illinois site.
“We ship a lot of material, as much as $100 million a quarter. We take orders, pick, pack and ship,” explains Meekma. “Time is important. If we get an order at 10 a.m., we want to ship the same day. We have to have the order ready to ship. We can’t have the trucks waiting while we put the order together.”
Meekma estimates the new RTLS system has reduced space needs by 40 percent. It has produced a labor savings of 450 hours. The learning curve was short, too. The company had the system fully operational within six months, about 12 months shorter than a typical implementation period.
System Builder, according to Todd Wazny, director of professional services, was developed for large or small companies. It currently is being used by the Ford Motor Co.
Keeping track of inventory in a rail yard or shipping dock is extremely important, contends Henry King, a general manager with Paceco Corp.’s system group. The Hayward, California-based company has designed a Mobile Inventory Vehicle (MIV) system that utilizes a specially designed truck with a computerized, mounted camera that allows quick monitoring of stacked containers.
King notes, “The customer base for the container shipping business is driven by how cost effectively and efficiently a container can be moved to its final destination. Often, many factors in the shipping process affect price and efficiency. They can include costs and time to transport a container on the highway or railway, to storing a container in a terminal yard, and onto a marine port to be loaded to an ocean-going vessel.”
Tighter inventory control is vital to success, industry experts say. Companies with strict inventory control can adjust quicker to industry and economic changes. “As the markets get more competitive, there’s more pressure to reduce inventory,” says Jon Schreibfeder, president of Effective Inventory Management, Inc. in Coppell, Texas. The company that closely monitors inventory can often find ways to “free up cash.” Effective inventory management, he adds, “allows a distributor to meet and exceed customer expectations of product availability. That can help a company maximize its profits.”
A company with too much inventory during a downturn can lose thousands, even millions of dollars. Meanwhile, one with a lean inventory can more easily adjust to buying trends.
Developing an effective inventory control plan requires a delicate balance between too much and too little. Timing is important. “When forced to reduce inventory, many distributors first look to get rid of dead stock and remove slow-moving inventory,” Schreibfeder cautions. “It is difficult to liquidate dead stock. If your customers don’t want this material, it probably will take a lot of effort to find someone who does want it.”
He adds, however, “Your customers may depend on you to have some slow-moving products always on the shelf just in case they need them. The availability of these products contributes to your reputation as a reliable supplier and helps to differentiate you from competitors.”
There’s no “one size fits all” system. Inventory systems are as diverse as the types of industries for which they are designed. Some are customized software packages that allow exporters to monitor merchandise, track orders and forecast refill need. Some programs come bundled with invoices and accounting features and can seamlessly integrate into a company’s existing accounting software packages such as QuickBooks. Others are comprehensive and include accounting systems. Popular bundles include NetSuite, Sage ERP X3, inFlow, Fishbowl Inventory and Red Prairie.
Some companies find creative uses for mass-produced software, tweaking it to solve inventory problems.
In 2008, the future was looking bleak for Limco Airepair Inc., an airplane parts maker based in Tulsa, Oklahoma. An announced move to North Carolina that was later rescinded initially caused panic. Employees and customers were leaving faster than rats from a sinking ship.
Adding to its woes, Limco was an airlines supplier in the midst of one of the nation’s worst economic downturns. Moreover, the global economy was also softening. The International Monetary Fund in its World Economic Outlook report declared: “The world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s.”
Meanwhile, the world’s airlines lost $5 billion in 2008, reported the International Air Transport Association (IATA). Passenger growth had dwindled, air cargo shipments fell and the prospects for 2009 were not much better. The IATA forecast a $2.5 billion loss for the upcoming year.
Despite the softening economy that saw massive layoffs. Some Limco employees did not want to relocate. Airline customers were cutting their orders partly because of the economy and partly because they had lost confidence in the Limco’s stability. A cloud of doom was hanging overhead.
“We lost some key people and customers,” recalls Ben Cunningham, Limco’s general manager of materials. “It took a real effort to turn things around.”
A year later, the company’s new president, Paul Hall, ushered in change with a new manufacturing and inventory control strategy that would save the business. He and his team of experts repaired the leaking ship with small changes that improved the big picture. Today, Limco Inc. has returned to its lofty perch as a leading manufacturer of heat exchangers for the airlines industry.
Before the rebirth, the company’s export program was in free-fall. Export revenue had dropped below 19 percent. Forty percent of its revenue is now generated from export business. Foreign customers now include KLM Airlines, Lufthansa Airlines and Saudi Airlines as well as airlines in China, Taiwan and Singapore. Total revenues for 2012 are forecast to reach $32 million, nearly 50 percent more than last year.
To adopt the right system, “A company has to investigate the capabilities of the system,” explains Terry Harris, managing partner with Chicago Consulting, a supply-chain design engineering firm. “It all depends on the export nature of the business.”
Tighter inventory control can impact cash flow.
“A company with an effective system can experience cost reduction in the range of 10 to 20 percent, enjoy service-level improvements, keep their customers longer and capture competitors’ customers,” contends Harris.
Winning back customers was an important goal for Limco. That meant taking a nuts-and-bolts approach to inventory management: accounting for every part utilized in the manufacturing process. Though parts were counted and cataloged in the past, scrutiny became a priority. Reducing the number of repair parts it stocked was one factor in the success, explains Cunningham.
An inventory status sheet allows Cunningham to track and reduce the movement and storage of parts that are seldom used. In the past there may have been parts that sat collecting dust for months. Usage was another key factor in reducing the cost of maintaining inventory. “We reduced inventory to the point that we keep two months’ worth of parts on hand.”
For example, Limco used to waste a tremendous number of thermocouples because they were improperly installed. Cunningham reduced the number of thermocouples needed by carefully monitoring and changing how the part was being inserted. A careful eye to detail produced big savings for a small company that could not afford waste. It had spent $6,000 to $7,000 a month for that part. Now the same order of thermocouples may last through much of the year.
A cautious eye is important. “We’re mainly able to predict our needs by keeping better record of our parts usage. Attention to detail is one of the keys to developing an efficient inventory management system. The company’s inventory is lean. We are able to keep the parts we need and get the job done,” explains Cunningham.
Limco not only saves on parts and shipping costs, the company’s ability to predict parts usage allows it to negotiate better prices with suppliers.
What system does Limco use? “It’s the Ben Cunningham system,” he replies. “I just developed a philosophy and use what we have to monitor inventory better. What you watch gets better.”
In Fort Valley, Georgia, Tony Bass, founder and president of Super Lawn Technologies, a developer of specialty trucks and equipment for the landscaping industry, looks for a significant increase in export business to Canada. He believes the company can double those sales to 20 percent. Super Lawn, a privately held company generating annual revenue of nearly $5 million, is projected to deliver about 200 vehicles this year—double its previous production.
A hands-on entrepreneur who established the company after years of operating his own landscaping business, Bass developed an inventory system by tweaking QuickBooks, a bundled software program. Employing it with his customized visual monitoring program, he can adjust inventory faster than larger companies when economic and landscaping industry conditions warrant change.
“We don’t inventory,” Bass explains. “Since 2008, we went back to the drawing board to focus on building common parts. We reduced the amount of inventory we have to carry.”
Harris is a firm believer. “It’s important to keep track of inventory. In difficult times people look to cut back inventories. Failure to do so can diminish the ability to serve customers.”
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