WHAT’S IN IT FOR YOU?
A major experienced manufacturer put up with an ‘out of stock’ problem because of resource limitations and / or internal skills issues. As I was the only one in the department with a marketing qualification it made sense to use my training to look at creating an ordering system that addressed this problem.
If you have a long standing business problem, sometimes it takes an external consultant like myself, to be employed exclusively to work on that problem to create a long term efficient solution. This article looks at how a solution to a single long standing problem was developed. If you would like to see other work that I performed in Clipsal, please see the Product management section of this site.
INTRODUCTION: This section describes the work I performed on a stock holding issue while working in Clipsal (Gerard Industries) in the Product Management department. Inside of Australia’s largest electrical manufacturer, I pro-actively chose to create this project simply because I was becoming swamped with customer complaints over ‘out of stock’ back orders being delayed.
Previously my portfolios were managed by convenience or 'how its always been done. Another critical issue was that the ordering for the whole company was often left to a single store-man who had many other priorities. This meant that they usually kept ordering similar amount of stock that was used the previous year, while not addressing the previous years order problems. This of course was tempered with ‘gut feel’ however it did not include updated minimum or maximum stock levels. It also meant extra holdings were not kept in the traditional low seasons when a level that was too low would mean that any medium size development that unexpectedly required the products would exhaust Clipsals stock. The slow replacement was frustrating and losing customers, especially when products and components could take up to three months to arrive from Asia.
ACTION: To understand the current state of stock order of products I performed a five year sales analysis on all products within my portfolio. Performing sales analysis helped build a case for which products needed to be deleted from ranges. For instance, the exhaust fan range had over 300 products which were making it difficult for customers, wholesalers and Clipsal to track, select the ideal product and carry all the range. It also meant that with limited warehousing, that many ranges often ran out of popular products.
RESULTS: My analysis helped understand each product’s net margin, length of holding time etc. After choosing which products to delete, I used competitor analysis, focus groups and ‘one on one’ interviews to help provide information for new product development plans. For a long term solution I analysed the seasonal stock holding patterns over the last five years and created an ordering program to account for seasonal sales trends and other parameters unique to this industry. This resulted in spare part order times being reduced and a saving of 15% on storage / assembly line costs over the year. The local manufacturing line could also be freed up for six months of the year as previously the line used to create constant small amounts of one product each month and then downtime occurred to swap tooling for another product. The program effectively kept the same total yearly order levels but re-distributed holdings to ensure there was always stock, but not an oversupply.
Example: Mistral exhaust product 3XXX-0. For this range I introduced monthly control limits (min / max stock), and allowed for a spare stock level of 100 fans to allow for new projects, expected months covered with above sales before backorders = 2 months. This resulted in only 70 more products being held per year, however holdings more closely matched sales requirements and ensured the products did not run out.
Stock Ordering schedule changes
Manufacturing environments experience many marketing issues from quality assurance, competition from cheap imports and product returns. With the high competition from cheap Chinese products a company like Clipsal could not afford to allow continual ‘out of stock’ issues to kill customer loyalty, yet sometimes market dominance makes it difficult for large companies to address these ‘little problems’. Clipsal is now fully foreign owned.
Many companies put up with these kinds of issues until they spiral out of control, simply because they do not have the internal skills or time to deal with them. If you have an issue that has been affecting your company for a while, perhaps it’s time to do something about it before it too grows out of hand.