Our client has had major challenges with their inventory held at supplier sites. The supplier stores the equipment over 7 locations, have been unable to provide accurate lists, are storing materials which are no longer required & condition of equipment cannot be determined without physically checking individual items. The inventory value is recorded as $10.4M, tied up capital, and annual storage costs for one supplier alone are $240K.
In addition to the costs the unknown status causes delays to executing maintenance and progressing projects & with breakdowns affecting clients ability to keep assets producing.
To address this a team, consisting of supplier, material management, end users,warehouse & engineering, were brought together to undertake a Value Stream Mapping session , to identify the problem areas.This resulted in a 5 day Kaizen event at the supplier site. The improvements were executed during the Kaizen where , workplace organisation , using 5S principles were applied:
Sort: identification & red tagging of unwanted surplus & obsolete items
Set: Consolidate all remaining materials into 2 locations for review
Shine: Scrapped 227 obsolete items, 29.5 tonnes, $1.1M worth of materials (Resold where possible)
Standardised: Process to control & report on supplier managed materials defined & rolled out
Sustain: All kept materials 227 items, including location & condition added to Clients ERP system, SAP, & where possible, moved to clients own warehouse.
The scrapping of 220 obsolete items created an 85% reduction in space required to store materials & a reduction of $150K for supplier storage.
The business wide visibility of owned inventory resulted in a $470K reduction in rental costs.
Status of equipment visible which assisted in planning & execution of asset maintenance & repair work, creating accurate planning & schedule adherence.
Our clients suppliers did see a reduction in revenue for storage however it created capacity for them to focus on the maintenance, repair & preservation of clients materials increasing revenue in this area.