Many years ago, when I was an automotive industry plant materials manager, I faced a big challenge. My company’s enterprise resources planning (ERP) system was failing us miserably with regard to our expendable packaging. Although we had initially been very successful at implementing a fully integrated ERP system driven by forecasts, material requirements planning and bills of material, it was discovered that pallets, corrugated boxes, dunnage and other packaging items were essentially impossible to plan for.
These were things that demanded a tremendous amount of space to store and endless surprise expediting headaches when we would suddenly run out. For example, large corrugated boxes had a lead time of six to eight weeks. During these periods, it always seemed like we were tripping over piles and piles of boxes; then, a few days later, we found ourselves expediting — again.
A lean approach saves the day
We tackled the problem by adopting a lean pull system. First, for pallets, we brought in local supplier candidates and verified that they could handle our worst-case volume scenarios. We figured out that they could ramp up in four or five days. A visual-management system was implemented for each type of pallet, with a quantity equaling a full week of maximum usage. The pallet supplier made deliveries every 48 hours and, after unloading, counted the empty spaces. This count became the authorization to replenish. This system required zero ERP and, better yet, the supplier did all the work. We never ran out of pallets again, and we never had more than a five-day supply.
The corrugated boxes and internal dunnage were more problematic. The suppliers were much farther away, they had six-week lead times, and piecemeal daily logistics was too costly. Although the suppliers could not do much about the lead times, they did agree to maintain a four-week inventory buffer at their warehouses, which augmented the two-week buffer at our own facility. For each type of packaging, we designed space for a standard number of stacks or bundles, making up about a two-week supply at full volume. We then counted the empty spaces and faxed the counts to the vendors every five days. This pull-system trigger became delivery authorization for the following week. Again, we never ran out again and enjoyed the benefits of having no more than two weeks of stock on hand.
There is a downside to every situation. Ours came in the form of forgetting to establish a formal process to stop the new lean pull system at the end of model-year production. In the automotive industry, when a model is discontinued and a new one introduced, it is rare for the new parts to use the same packaging. Because we failed to involve our vendors in the wind-down plan, we ended up destroying many weeks’ worth of packaging. Although this did not get me fired, it did teach me a valuable lesson.
With any planning and replenishment strategy, there are complex risks and issues to manage. ERP, working as designed, is a zero-inventory solution. With ERP, you plan, produce or buy exactly what is needed to ship to customers. Absent errors or variances, when the customer stops ordering, you stop planning, and the system should net inventory to zero after the last shipment is made. Pull systems are not zero-inventory solutions. They require buffer inventories to allow adequate time to signal replenishment from suppliers and are triggered only by consumption. That’s a critical difference. Moreover, while using pull is simple and effective, it is a poor solution in an environment of frequent engineering changes or that has other instabilities in design or supply.
If considering a pull system design, be sure to perform a failure mode effects analysis. Most businesses will find that pull is appropriate for certain kinds of items, while ERP is essential for others. Don’t force fit anything into the wrong approach.
Ron Crabtree, CIRM, SCOR-P, MLSSBB, is chief executive officer of MetaOps, a master MetaExpert and an organizational transformation architect. He is the author or coauthor of five books about operational excellence and the online magazine at MetaOpsMagazine.com. Crabtree also teaches, presents and consults. He may be contacted at email@example.com.
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