Reducing inventories while improving delivery performance

Abstract

Industrial coatings are often customer-specific products, which have to be adjusted to the specific application conditions of each application plant. To meet their high specifications, typically more than 15 different raw materials are needed, and the best-fitting supplier is selected. Short lead times and relatively high transport costs require decentralised production. Minimising inventories is therefore difficult. Industry benchmarks show that mid-sized coatings companies typically have a higher ratio of inventories to sales than large companies. Internal benchmarking can reveal optimisation potential if similar-sized and positioned plants are compared on their days of inventory (DOI) as an average of the individual months. By setting DOI targets and introducing regular supply chain telephone conferences with all sites, improvements can be achieved quite easily on excessive inventories. Highlighting the percentage of expired or aged stocks within the total inventory will identify further reduction potential. Here it is important to look at gross values as financially, these expired and aged materials are often already written off. Raw material consignment stocks can be increased in cooperation with procurement while consignment stocks at customers need to be addressed together with sales. Taking these individual measures together, it is possible for even a mid-sized company to achieve a comparable performance to a large company. It is usually assumed that high inventory levels are necessary to achieve a good delivery performance. This is not necessarily true, as the better planning necessary to reduce inventories in a controlled way will also benefit demand planning. Besides, less cluttered warehouses will shorten the time for picking raw materials and increase compliance with first-in, first-out principles. This paper will give an example of how inventories were reduced in Beckers while at the same time lead times were improved. It will be demonstrated that the conventional wisdom about high inventories being necessary for a good delivery performance might be a myth when it comes to non-standardised items that are manufactured from varying raw materials. It thus could help supply chain managers in their argumentation with demanding sales colleagues.