CELDi Basic/Collaborative Research (’03-’04)

1. CELDi Basic/Collaborative Research (’03-’04) B. M. Pulat University of Oklahoma October 29, 2004

2. CELDi Basic/Collaborative Research (’03-’04) • IAB Charge: (Oct. 15, 2003) Focus on Best Practices/Research Needs in: -- Inventory Management -- IT Implementations in the Supply Chain Collaborate Across CELDi campuses

3. CELDi Basic/Collaborative Research (’03-’04) • CELDi Directors’ Kickoff Meeting (11/5, ’03) -- Select the Research Area -- Develop the Approach, Timeline, Deliverable • Follow-up Meeting (12/16, ’03) -- Define Topics -- Assign Topics to Four Campuses • CELDi Spring Forum Update (4/14, ’04)

4. CELDi Basic/Collaborative Research (’03-’04) • Leadership: -- Ricki Ingalls OSU Coordinator -- John Usher UoL Coordinator -- Scott Mason UoA Coordinator -- B. M. Pulat Overall Coordinator/OU Coordinator

5. CELDi Basic/Collaborative Research (’03-’04) • Campus Topic Assignment: University of Oklahoma – Forecasting Purchasing Practices Oklahoma State University – Raw Material Inventory WIP Inventory

6. CELDi Basic/Collaborative Research (’03-’04) University of Arkansas -- Finished Goods Inventory/Cust. Service Inventory Tracking Technologies University of Louisville -- Inventory Control Inventory Quality/Accuracy

7. CELDi Basic/Collaborative Research (’03-’04) As of Sept 30, 2004, completion rates: UoA 100% OU 100% OSU 100% UoL 100% Full report available in October 2004!!

8. CELDi Basic/Collaborative Research (’03-’04) • Sample Best Practices Forecasting: A benchmark company uses store data with a decision support tool to determine store trends and use the results to revamp unit goals. Point-of-sale data could also indicate that a store is running low on specific items. Leading organizations test forecasts before full-scale use based on same past history. The parameters of the model that work best become the optimal plan of implementation.

9. CELDi Basic/Collaborative Research (’03-’04) Procurement: One trend observed at successful companies is allocating responsibility for implementing procurement needs to business units, allowing corporate procurement to focus resources on strategic issues. Companies that have allowed their corporate procurement functions to focus mainly on strategy have realized increased productivity gains and more streamlined procurement processes. Best practice procurement involvement begins at design/specification development process. Traditional involvement starts at the RFQ process after detailed design. In benchmark organizations, purchasing department plays a notable role in “make or buy” decisions.

10. CELDi Basic/Collaborative Research (’03-’04) Raw Material Inventory: Benchmark companies engage in innovative approaches with their suppliers, such as vendor managed inventory (VMI) and just-in-time deliveries to minimize inventory investment in raw materials. Information sharing between supply chain partners helps reduce the impact of the Bullwhip Effect on the upstream stock, such as raw material stock.

11. CELDi Basic/Collaborative Research (’03-’04) Work-In-Process (WIP) Inventory: Companies that have reduced WIP inventory down to minimal levels have done so primarily by reducing cycle times, and instituting “pull” processes that use various types of kanbans. Kanbans have been documented to perform well under relatively stable demand conditions and reliable operating conditions. Hence, level loading of the production process, as well as reliable/capable process elements help minimize WIP significantly.

12. CELDi Basic/Collaborative Research (’03-’04) Inventory Tracking: Companies that report use of IT software for shipping and customer handling experience significant progress in meeting due dates. Also, facilities that use point of sale applications maintain good customer relationships. Visibility into material and components location provides an effective basis for the development of just-in-time management systems. Visibility into work center data can be obtained through real-time data logging for check-in and checkout of required materials and tooling at the work center. Radio Frequency Identification (RFID) tagging, used in combination with advanced software and networking skills, is the next step in pursuit of TAV.

13. CELDi Basic/Collaborative Research (’03-’04) Finished Goods/Customer Service: In order to meet customer demand, organizations should classify their customers to understand them better. An organization may have customers buying low margin products as well as those that transact high margin products. A customer who places standard orders is different from a customer that demands special deliveries with customization. Less profitable customers need to be identified, and effort should be made to turn them into profitable customers. Manufacturers are challenged with the task of producing only what has been ordered and not producing to the economic order quantities. This requires flexible systems that require minimal setups.

14. CELDi Basic/Collaborative Research (’03-’04) Inventory Accuracy: All leading edge companies have well-established written policies for conducting physical counts of inventory. These written policies not only demonstrate management commitment to the process, but also act as the primary method of communicating the policy to those workers involved in the counting process. Segregation of duties involves the division of key inventory control duties among a variety of people to reduce the risk of error and fraud, because no one individual can completely dictate the accuracy and integrity of the data. Leading edge companies use “blind counts” to ensure data accuracy. A blind count is one in which the count personnel are not provided with the number of on-hand units in the inventory records prior to their count. Counters are only provided the item number, location, physical description, etc., but not the amount to expect on the shelf.

15. CELDi Basic/Collaborative Research (’03-’04) Inventory Control: Best-in-class companies typically classify finished goods inventory by criticality so that they can utilize different strategies within each class because of changing operating conditions that are usually present. It is common to use three categories, A, B, and C, with the A items making up roughly 20% of the total number of items, but representing 80% of the dollar sales volume. B items represent the 30% that generate 15% of the sales volume, and C items represent 50% of the items that represent only 5% of sales dollars. Today’s companies that are successful at maintaining minimal levels of inventory while ensuring high service levels, do so by employing extensive mathematical models to help them manage inventory and make the best possible control decisions.