For the last few months, it appears the proverbialeconomic pendulum seems to have been given an extrakick beyond the normal “swing” to a slower period. Butis now the time to put off those technology projects andcontinuous improvement initiatives?
In the JDEtips November/December 2008 “From thePublisher” column, Andy Klee quotes Dr. C.J. Rhoads(a frequent JDEtips contributor): “Using the downtimeto plan for, install, and implement new technologies…will enable the company to better meet the needs of thecustomer…. Both the company and the customer win inthe long run.” If you missed Andy’s column in the lastissue of JDEtips, log on right now, download the issue,and read it – it is a great one.
There is a great irony in the inevitable busier andslower periods that mark the normal economic cycles.When times are high flying, companies are working somuch overtime and weekends that they leave little timeto take on initiatives to improve the business. Sometimeseven what is needed to maintain the businessgets put on the back burner (e.g., “Lets have the CycleCounter do order picking tomorrow…”). Yet, this iswhen most companies choose to initiate large technologyand improvement projects. Then, when times slowdown, the focus becomes cost cutting – which typicallymeans the simplistic cost cutting. Businesses tend tofocus on reducing purchases (technology, equipment,outside services), delaying improvement projects, andemployee layoffs.
Exactly when the business resources have a little timefree to take on projects that would cut costs over thelong term and increase customer satisfaction far intothe future – they instead circle the wagons, and waitout the slow period. When the inevitable economicpendulum swings back to good times, the business onceagain faces a familiar set of problems.
Take these projects on now tobenefit both now andwhen the proverbial pendulumswings back.
This article highlights six Inventory Management initiativesdesigned to:
• Reduce cost now and in the future
• Improve customer satisfaction now and in the future
• Position businesses for growth in the future
Take these projects on now to benefit both now andwhen the proverbial pendulum swings back. JDE®–from World® to the latest EnterpriseOne® release– provides the functionality, tools, and data required tomake these initiatives a success.
Initiative 1 – Out with the Old, and theReally Old
Does your warehouse have pallets of boxes printed withChristmas 2006? Are there pallets of brochures forEaster 2007? Are there items in your warehouse thatare no longer sold in the retail store OR on-line?Of the six initiatives in this article, this one is boringand may seem obvious. However, the old inventory, andreally old inventory in a warehouse is “low hangin (and rotting) fruit”. If you do not think your inventoryhas this issue, take a walk around the warehouse– especially the backs of aisles, and less accessiblecorners; virtually every warehouse has this problem.
Warehouse space is expensive – really. It is not just thespace. Rack is expensive. Material handling vehiclesare expensive. Labor is expensive. If a space shortagehas forced the business to lease an “overflow” storagelocation, there are all of the costs above – plus transfertruck costs, and potential customer service impacts.
In a perfect world, obsolete inventory is managed outon an ongoing basis. In reality, when business is booming,the old inventory just sits – taking up more andmore space each month.
Using JDE to Help
Identify Item Numbers with inventory that has notbeen used recently. Depending on your business, thelifecycle of an item number could be a month or severalyears. JDE can be used to find these item numbers.In the Item Ledger/Cardex, the transactions for ShipConfirmations or Manufacturing Issues are recorded.In Figure 1, Item 3510 was last used for a Work OrderIssue (IM) transaction on November 22, 2006. Yet,Quantity On Hand indicates 984 units still in inventory– and likely with a lot of dust!
All versions of JDE (World to EnterpriseOne) containinformation to help identify “dead” item numbers.Work with the IT department to generate a report orquery that identifies Item Numbers with inventory onhand, and the most recent usage date. This is a reportor query which should be run periodically to preventold inventory accumulation.
Initiative 2 – Not Using RF? Catch Up withthe 1980s
RF (Radio Frequency) equipment and barcodes arehardly cutting edge technology at this point. However,it is amazing how many businesses are not takingadvantage of the benefits of real-time inventory trackingenabled by RF and wireless devices.
When inventory is tracked on paper, the system andphysical inventory NEVER match. Anyone who hasever checked Item Availability inquiry, then walked outto the warehouse and found a different quantity, or differentitem number – then found the paper record of thetransactions in the inbox of someone who is on vacation– knows this frustration. There are many risks toinventory accuracy – lose a piece of paper, write downdata incorrectly, mistype data entry, or simply useinventory without recording a system transaction.
The result is customer orders not filled or manufacturinglines stopped due to inventory discrepancies. Customersatisfaction is impacted; costs go up when SalesOrders or Vendor deliveries must be expedited.
Using JDE to Help
JDE does not come “out of the box” with RF technology.The good news is that there are several excellent RF Integration vendors withproducts designed towork with JDE – includingall EnterpriseOneand World versions.
RF integration withJDE does not have tobe complex. Most of theRF Integration vendorshave pre-built tools forthe common Inventory,Warehouse, and Manufacturingtransactions.With a small amount ofconfiguration, InventoryMovements, Sales OrderPicking, and even PurchaseOrder Receipts,Work Order Completionsand Work Order Issuescan occur in real-timeand with near 100%accuracy. Figures 2and 3 illustrate howone third-party vendor,RFgen, integrates withJDE.
The potential benefitsare enormous. Inventoryis instantly updatedwhenever a transactionoccurs. Data entrycosts are reduced.Customer Order accuracyimproves. Facilitythroughput scales upwith fewer resources– supporting businessgrowth when order volume increases.
An RF Integration implementation is a great initiativefor a slower business period. The Operations team(s)must actively participate in this initiative, in additionto the IT Department. Business processes will need tobe reviewed, updated, and documented. For a businessthat has never used RF technology for inventorytransactions, there is typically a significant end-usertraining effort required to prevent your customers frombeing impacted by the inevitable “learning curve”associated with the “new” technology.
Initiative 3 – Implement a Cycle CountProgram
“What is Cycle Counting?” The most frequent responsesinvolve keeping inventory accurate, and avoidingPhysical Inventory counts. Cycle Count programs aretypically designed to maintain high inventory accuracy,and to comply with an auditor’s instructions so doing afull Physical Inventory can be avoided.
But why is inventory accuracy important? The realdrivers for inventory accuracy are customer serviceand operations efficiency (i.e., cost). Accurate inventorymeans customers receive fewer orders shippedshort, resulting in greater customer satisfaction andfewer missed revenue opportunities for the company.Accurate inventory means efficient internal manufacturingoperations that are not disrupted due to missing components.
You can sell the investment in a Cycle Count programon the root benefits – customer satisfaction andimproved operating efficiency.
Continuous Process Improvement is an equally important,but less frequently applied element of a CycleCounting program. Each inventory discrepancy is anopportunity to both identify and correct the root causesin order to prevent future discrepancies from re-occurring.When building the Cycle Count program, besure to allocate resources to research why and how thediscrepancy occurred.
The reasons for inventory transaction errors vary fromsimple user errors to systemic process problems, or evensoftware bugs. Identifying these issues and stoppingthe root cause will result in higher accuracy levels;this translates to higher customer satisfaction, greateroperating efficiency, and a real possibility of eliminatinginventory physical counts.
Using JDE to Help
JDE versions including all World and E1 releases containCycle Count functionality. And, the RF Integrationvendors provide RF-based tools for performing theCycle Count data entries. Figure 4 contains an overviewof the JDE Cycle Count process.
The standard JDE Item Ledger/Cardex, PurchasingLedger, Sales Order History, and ManufacturingWork Orders provide useful tools for performing rootcause analysis on how and why discrepancies occurred.Plus, the RF Integration software provides additionaltransactional logs when the standard JDE tools are not enough.
To illustrate, let’s look at a quick example. Earlierthis year, a client began encountering frequent CycleCount errors in which the inventory was expectedin a particular warehouse location, but was notfound in that location. A check of the ManufacturingWork Orders found that the missing inventory wascommitted to the Parts List. After researching throughthe facility work logs, it was determined that all ofthe missing inventory was committed to Work Ordersassigned to a single, new employee. The new employeewas moving the inventory, then completing the systemtransactions later in his shift (often 6-8 hours later).With some quick retraining, these discrepanciesquickly disappeared.
JDETips Articles to Check Out:
As with any JDE functionality, it is important tounderstand how the tools work. Check out these articlesin the JDEtips documents archive for more information:
Cycle Counting: Or Can I Continue Doing BusinessWhile I Count? Co-authored by Andy Klee and DavidMallory, this article addresses one of the most importantCycle Counting realities in JDE.
Cycle Counting by ABC (January/February 2007).This is an article I previously wrote that covers the JDEABC Cycle Counting functionality.
Initiative 4 – Procurement/Manufacturing Planning Review
Inventory is expensive. Ask the CFO.Inventory represents company assets tied up in “stuff”sitting on warehouse shelves. One way or another—either through interest on loans or opportunity cost—the business is paying every day to have the inventoryon hand. Plus, each day inventory is in the warehouse,it accumulates costs for space and utilities, and runsthe risk of incurring costs for inventory relocations aswell as becoming lost or damaged.
Every company attempts to balance the various realitiesof having inventory. The balance includes maintainingenough inventory to meet fill rate objectives,meeting company objectives for total inventory value,and minimizing scrapped inventory due to obsolescence.
For those companies using the standard JDE MRP/DRP/MPS functionality, there are several initiativesyou can undertake to make sure the Planning Processis functioning in support of the business by planning enough of the right inventory, and not overstocking thewrong inventory. (Note: If your company is not usinga system-based Planning Process, consider a project toget started. The JDE standard functionality is an excellentplace to begin.)
Describing the potential components of a PlanningProcess audit could easily fill this entire journal. Thefollowing are the highlights to include in the effort:
• Analyze the Current Planning Data. Select a set ofItem Numbers, representing a cross-section of Itemtypes in the business. Review the Planning Messagesand Time Series data. Does the Planning informationmake sense? Is too much inventory being ordered?Are Purchase Orders or Work Orders too frequent, ornot frequent enough?
Figure 5 shows an example MRP Time Series Screenfor a Finished Good Item. Analysis of this data istypically business situation specific. In this example,several things require analysis:
– Inventory Stock drops too low in week one.Safety Stock (not shown) for this Item Number is1240 EA. Therefore, there is a serious risk of shippingorders short and missing revenue.
– Sales Order Quantities appear very low. In thisexample, a recently added Order Activity Rule hasnot been updated in the Supply & Demand InclusionRules, resulting in understated inventorydemand.
• Ask the Planners How It Is Working. Typically, thePlanning staff is quite aware of the company inventoryobjectives (they hear from the Finance staff wheninventory is too high). Ask them some basic questions– do they use the Planning Messages? If not, why not?What is wrong with the data? How could the data bebetter? Some great clues are likely to emerge.
• Supply and Demand Date & Quantity Accuracy.Are there a large number of behind schedule WorkOrders or late Purchase Orders? Are there a largenumber of open Sales Orders past the expected ShipDate? Any of the above is an indication that the Procurement,Manufacturing, and/or Sales Order datesand quantities are not being updated. In Figure 5,there are open Sales Orders in the Past Due period,and an open Work Order in the current period for onecase (24 eaches).
An accurate picture of Supply and Demand is crucialto accurate Planning Process output, and tomaintaining desired inventory levels. Work with theinternal stakeholders to develop processes for keepingthe dates and quantities accurate.
• Safety Stock Levels. Safety Stock is that “cushion”of inventory that protects against supply and demandvariability. Some companies hire PhDs, and createelaborate mathematical models to calculate SafetyStock. In addition to these methods, apply some commonsense. Check theSafety Stock quantityagainst typical usagevolumes and the difficultyof procuringor manufacturing anitem (the IT Departmentshould be able tohelp streamline thisanalysis). Lower SafetyStocks result in loweron hand inventoryvalue, and open upwarehouse space – agreat combination aslong as the customer isnot impacted.
• Minimum OrderQuantities & OrderQuantity Multiples.Purchasing smallerquantities reduceson hand inventory.
Depending on the pricing agreements with vendors,shipping costs, and supply/demand variability, itmay make sense to purchase smaller quantities, morefrequently. In some situations, vendors may be willingto hold the inventory in their warehouse, insteadof yours, thus reducing your storage space requirements.This arrangement is especially feasible foritems which are used in larger volumes, in consistentquantities (e.g., corrugated boxes, labels, wrappers,packaging materials, commonly used components).
In Figure 5, the recommended Order Quantity duringthe week of 12/26/2008 is not an even case quantity.The Multiple Order Quantity should be updatedto an even case quantity to reduce the chances ofhaving leftover units that cannot be sold.
• Basic Planning Configuration. The Item Branch,Additional System Information screen (shown inFigure 6) contains several configuration optionswhich impact Planning Message output and thereforeInventory level. Check the leadtime values – are theseaccurate? If leadtime is set to 30 days, but really onlyrequires 15 days – inventory sits in the warehouse 15extra days. Check the Order Policy Code, Value OrderPolicy (if applicable), Planning Code, Planning FenceRule, and Planning Fence – these values should makesense for the business. The IT Department will beable to assist with the configuration review by obtaining extracts or designing reports to obtain and sort/categorize the information for more efficient review.
• Develop Internal Procedures for Periodic PlanningReviews. Completing these Planning Processreview activities once will be beneficial. Implementingprocedures to repeat these steps periodically will assure continued attention to these important elementsof Inventory Management.
JDEtips Articles to Check Out:
An Overview of JDE DRP/MPS/MRP Planning Process(January/February 2006). Author Terry Horner coversthe basics, and highlights some of the “gotchas” in thePlanning functionality.
Vendor Partnerships: How To Make A Good One (September/October 2006). Author C.J. Rhoads providestips on how to approach vendor partnerships, evaluatevendors, and move toward change.
Initiative 5 – Inventory Management Metrics
“Show me the money metrics”. Okay – Inventory Managementmetrics are not as exciting as a blockbusterHollywood movie tagline, but the idea is the same. Awell-defined set of inventory metrics will provide a continuoustool for measuring inventory health.
The key is to measure the right information for thebusiness, then develop a tool set to make obtainingthe data accurate, reliable, and fast (when businessvolumes pick up, difficult analyses inevitably get putaside). The Inventory Management team should definethe measures, then work with the IT department todetermine how to develop the tools required. (Reportswhich can be placed on a menu, or run via an externalreporting tool are the best long term solution – withmetrics, visibility is crucial!)
There are some common inventory measures tracked bycompanies with best practice Inventory Management:
• Turn Rate• Accuracy Percentage
• Order Fill Rate and/or Order Line Fill Rate
• Line Stoppages due to Component Shortages
• Inventory ValueUsing JDE to HelpFor most of these measures, JDE – World throughEnterpriseOne versions – stores the data required todesign and develop measurement tools.
• Turn Rate. This calculation requires Cost of GoodsSold and the Average Inventory Value. The R41116Inventory Turn report may meet the business requirements,or a custom report can be developed.
• Accuracy Percentage. There are several methods forcalculating an Accuracy Percentage. The Cycle Counttables (F4140, F4141, and F4142) provide the datarequired.
• Order and Order Line Fill Rates. The Sales OrderHistory table (F42119) or the Sales Order Detail table(F4211) should provide the required data.
• Line Stoppages are probably not available in JDE,so another data source is required.
• Inventory Value. The Inventory Valuation Report(R41590) will likely address this requirement, or thebusiness may have its own custom report; you’ll wantto check with the Finance department.
Finally, if no one cares about or acts on these metrics,they will be meaningless. To make sure the metrics areregularly reviewed and acted on, incorporate the objectivesfor the Inventory Management metrics into CompanyGoals, Department Commitments, and PersonalPerformance Commitments.
Initiative 6 – Speed Up Inventory Flow inthe Warehouse
There is nothing quite like the site of warehouse stagingareas jam-packed with inventory, day after day.While some may be inclined to view this situation asa sign of great sales volume, the more accurate view isjust what it looks like – inventory “sitting around”.
As inventory piles up in a staging area, it is subjectto the risk of damage, disappearance, or shipment tothe wrong place. When full warehouse staging spacebecomes the normal operating procedure, shippingerrors start to occur and customers complain. Extraorder checking processes are created. Temporaryemployees are hired to apply hand-written placardsafter order picking.
Steps are added to business processes which requireadditional resources, and keep the inventory in thestaging area even longer. The cycle often progresses tothe point that the warehouse requires larger stagingareas, resulting in facility expansion or offsite overflowstorage; operating costs rise.
Outbound inventory should be swiftly moved fromthe rack to the outbound trailer, railcar, or container.Inbound inventory should be moved swiftly from thewarehouse door to the rack. Staging space will bereduced and while increased speed of the inventory flowwill cut down on shipping errors and improve customersatisfaction, it may even result in cost reductions.
Similar to the last initiative, this one may be a bigproject involving several departments: Inventory,Warehouse, Manufacturing, and the Customer Servicedepartments, along with the support of the IT departmentand even outside service providers.
Some important elements of this initiative effort are:
• Identify and Document the Process Flow Stepsfor Inbound and Outbound Processing. Thiselement may seem easy – but it isn’t. To identify anddocument the Inbound and Outbound processes,someone will need to actually follow the processesthrough the steps both in the office and on the warehousefloor. Then, document the process steps usingMicrosoft Visio or PowerPoint. It is not enough to usesome old flowcharts, or just interview the InventoryManager or Warehouse Supervisors – all too oftenthese sources are aware of how processes are supposedto work, but not how they are actually working.
• Analyze the Process Times and Delay Times.Time studies were invented because they generatevery useful information. A formal time study may notbe required, but some observation and data collectionwill be very useful. For example, is there a long delaybetween Order Picking and Order Checking/Verification?Is there a long delay between Order Checking/Verification and Trailer Loading? Is there a long delay between Inbound Trailer Unload and StoragePutaway?
• Analyze the Information. Bring the members ofyour team together to analyze the information collected.It is important to have a discussion of whyprocesses are what they are – even if they no longermake sense or are required.
• Identify Steps to Remove. Are there steps whichcan be removed? It is surprising how often there is anobviously non-value added process step.
• Identify where Technology Can Improve Reliability.See also Initiative #2. RF, barcode and RFIDtechnology can improve many inventory related processes– especially customer order fulfillment. Can RFtechnology and updated business processes be used toincrease accuracy and reduce labor during checking/verification processes – as well as speed up the timefrom rack to trailer? Can Outbound label printing beintegrated into the RF Picking process, to eliminate aprocess step?
• Process-Based Inventory Metrics. The most reliableway to ensure process improvements are not lostis with metrics. Between JDE and RF Integration tooldata, and some collaboration between your businessteam and the IT department, develop tools formeasuring the process flow time. A report or extractwhich includes Order Fulfillment Flow Time (Releaseto Warehouse or first Warehouse Pick through TrailerLoad) and Inbound Receipt Flow Time (Truck Arrivalor Receipt Transaction Time through WarehouseStorage Completed), will provide valuable informationon inventory process health on an ongoing basis.
Using JDE to Help
The Sales Order and Purchase Order Activity Rulesare a good place to start for this initiative. Just keepin mind, the Activity Rules typically only tell part ofthe “business process story”; business process steps can occur without Order Status changes. For example, labelprinting steps and warehouse putaways typically do notresult in Order Status changes.
The Item Ledger/Cardex records many transactions,including Purchase Order Receipts, Inventory movements,and Inventory Shipments. If your business isusing the Warehouse Management module, additionalinformation is available in the Warehouse Task file andthe License Plate history file.
The Sales Order Ledger and Purchasing Ledger mayprovide useful information as well. While these filesrely on the Order Activity Rule configuration, the datacan be useful for analysis of high level process flowtimes.
Wrapup
Inventory Management is a key element in both customersatisfaction and controlling costs. During theslow times, high satisfaction keeps your existingcustomers around; an inventory that is in control helpskeep cost of goods sold in check. And, when times getbetter, customer satisfaction and controlled costs willhave the business positioned for sales growth.
Now is the time to improve Inventory Management.Whether it is initiatives that can be accomplished withinternal sweat (Clean out the Old Inventory, ImplementCycle Counting, Establish Inventory ManagementMetrics) or initiatives that require some externalhelp (Implement RF, Planning Process Review, and/orInventory Flow Review), do not let this opportunity goto waste.
Tyler Simonton is a leading expert on JDE SupplyChain modules – including Warehouse Management,Inventory, Manufacturing, and Transportation modules– plus RF Integration. With over 15 years of softwareexperience – including 8 years exclusively usingJDE, he brings a strong background in applicationsoftware, business process design, and project management.He has extensive experience in the food and beverageindustry, as well as many other industries – fromsports equipment to aircraft manufacturing. You maycontact the author at JDEtips.Authors@ERPtips.com. Be sureto mention the author’s name and/or the article title.
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