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Distributor's Link Magazine Summer 2021 / Vol 44 No 3


64 THE DISTRIBUTOR’S LINK Robert Footlik Robert B. Footlik, PE is a retired Professional Industrial Engineer. With over 50 years’ experience as a Warehouse and Logistics Consultant to a wide variety of clients including Fastener Distributors, Bob has a wealth of valuable information for our industry and he is willing to share it. While Footlik & Associates is now closed, his expertise is still available to his friends and our readers. For friendly advice, a second opinion or just to start a conversation, he can be reached at TAKING ANOTHER LOOK AT INVENTORY What happens when you install a new Warehouse Management System, change accounting methods, hire a new Purchasing Manager or a Covid-19 Pandemic hits the world. Radical changes of any kind means that many of the old inventory schemes and paradigms are going to change. But have you made any recent changes to your inventory level programs? Safety Stock, Do We Still Need It? The normal place to start examining inventory levels is with demand, but not this time. Too much has changed in the supply chain and these new realities will severely impact the Fastener Industry. With the number of manufacturing plants that have closed, consolidated and moved offshore none of the old paradigms are still in place. And the next major shift in American manufacturing will come with the realization that cheap labor isn’t anywhere as cheap as automation. With the right tax incentives factory jobs will return to US soil. During Covid-19 a decrease in sourcing alternatives coupled with decreased demand meant that product might be more available. This didn’t last for long. Manufacturing that is designed for long production runs is being replaced with lean operations that can do short production runs with far faster production line changes Safety stock should therefore decrease radically, if the vendors raise their efficiency by becoming “lean” in their operations. More frequent production runs means faster turnaround and even if the vendor’s inventory level is reduced in dollars or quantity you should be able to get CONTRIBUTOR ARTICLE product faster, but there will be fewer vendors to choose from. Similarly on your end new internal procedures with more frequent ordering should cut safety stock by a significant percentage. Given this as a likely scenario, if you have been living off of current, in stock inventory for the last year now is the time to develop alternative sources, change lines and take a good look at the time required from the order entry date to the arrival of the materials. If this has significantly decreased then the safety stock level should be adjusted accordingly. The order time depends on many factors, including the distance and complexity of the vendor inventory, but Amazon has set a new standard for delivery expectations. Often simple materials, stored in larger quantities will be available overnight. If this is the case why maintain more than a week of stock? The lesson to be learned is that establishing one rigid safety stock rule for everything guarantees that you will miss opportunities to improve inventory turns and therefore need more capital for inventory. While it is best to examine purchase timing data for each Stock Keeping Unit (SKU) individually, be sure to review the numbers by vendor, plant (source) and “family” of materials or production processes. Anything done strictly by vendor alone is a waste of your time. Balanced against these vendor production and supply improvements are changes in raw materials availability. Shortages in basic metals and alloys can create procurement problems if there is a rapid upturn in demand. CONTINUED ON PAGE 130

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