When it comes to improving inventory efficiency, manufacturers have a dual challenge in both forecasting how much finished goods inventory they need (and where it should be placed), and optimizing the flow of raw materials so that they don't over or under-produce against those forecasts.
Mevotech has cut its inventory 20 percent while increasing its sales thanks to a new ERP system, a paperless warehouse solution and a new forecasting tool. The supply chain solution won this year's Polk Inventory Efficiency Award in the manufacturer category.
"What the selection committee really responded to was that Mevotech really looked across the entire supply chain," says Mark Seng, vice president of aftermarket and commercial vehicle and global aftermarket practice leader at R.L. Polk & Co. "They looked at increasing efficiencies and fill rates, lowering inventory levels overall, and really optimizing their inventory across the entire chain, whether that was raw materials, work-in-process, or finished goods."
Toronto-based Mevotech manufacturers chassis and suspension parts, among other things, and manages 55,000 part numbers. The company wanted to improve efficiency, maintain an accurate inventory and better manage its limited warehouse space.
"We have both internal and external challenges," says Scott Stone, vice president of sales at Mevotech. "Customer expectations and service level expectations continue to grow, and we do a lot of private labeling. We also have a first-to-market strategy, so we have quite a few new applications that are raw in their development state. We also have a global supply chain environment."
To better manage its supply chain, the company launched its Excellence in Inventory Strategy (EXIST) in multiple stages.
First, the company converted to an RF-based, paperless warehouse using mobile bar code scanners to move, pick, and ship product, and quickly followed that deployment with a new enterprise resource management (ERP) system. Both the warehouse management and ERP system are part of the Pronto Xi suite from Pronto Software in Australia.
"We tore out the old system, and that really launched us into a new era where we had new tools and new information, so we could make better choices," Stone says. "That system manages how we generate pick waves and has improved picking efficiency."
Mevotech then focused on developing a master scheduling tool, which involved creating analytics for forecasting. The company also leveraged internal knowledge to create a new product lifecycle management (PLM) program. "That has allowed us to work with our factories on a just-in-time delivery program, and we've also standardized our carton and container shipment quantities and elements," Stone says.
Finally, Mevotech worked with its customers on inventory optimization and forecasting strategies so that retailers could better forecast their demand needs, overlay those to Mevotech's supply chain analytics and eliminate outages in the supply chain.
"We make sure that every part number has a plan," Stone says. "We forecast every individual part number uniquely based on the customer, the region, and other trends. We use sales history, VIOs, wear rates, platform characteristics, failure rates, complementary part trends and other factors."
Suppliers receive 12-month forecasts that are released every 60 days. "We've taken our collective volume and put it in a format so they can predict and produce efficiently, and ship to us in an efficient manner. On the customer side, we've been shipping at 96 to 98 percent levels since this started, so that has meant continuity of supply for those customers."
Mevotech also had a limited amount of warehouse space available at its facilities, and had to employ different strategies to optimize the use of that space. "Some part numbers with less predictable demand are held in a semi-finished state, and final packaging is done on the fly so we can use less cube," Stone says. "We have a just-in-time process between the bulk facility and the finished goods facility, which allows them transition need-to-have product within a four-hour period to the finished goods state, so we can marry that up with a customer order and get it out of the building."
Stone says the key element to the company's success in the EXIST venture was involving its employees. "We recognized early that we were going to reinvent our company and our processes, and we had to get the people involved," Stone says. "We needed their help, and we had to get them engaged in this new strategy, and we used our collective resources to implement and execute it. We didn't position this as an IT project per se; we looked at the big picture, how we could get our minds aligned, and make sacrifices for the common good. Everything changed in our company, from door to door.
During the two-and-a-half-year implementation, the company decreased order turn times by nearly 60 percent (around 48 hours), increased fill rates by seven percentage points, and its product time-to-market is now three times faster. Warehouse inventory was slashed 20 percent, and inventory accuracy improved by 10 percentage points. Returns also have been reduced significantly.
"We've gotten a lot of gains out of this," Stone says. "We have better suggestions for our customers, and we're driving an improved business model with them."
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